Bitcoin May Be Big, But It's No 'Currency'

By Nick Agar, Founder of AXIA

Bitcoin is currently the undisputed king of the crypto, so much so that its price action can work as a sort of a benchmark for the entirety of CoinMarketCap's listings. Whenever it goes up or down, altcoins normally follow, that’s hardly surprising by now. What is surprising, though, is that we are still calling it a currency, even though that’s clearly not what it is.

Currency is, fundamentally, a medium of exchange, a store of value, and a unit of account. It could work in many ways, from a gold coin that is valuable on its own, which is the old way to do it, to a banknote that is reliant on the trust in the government as well as the financial and monetary system behind it, which is what fiat is all about. One way or another, the main function of all of the above is to change hands as a fungible unit for value exchange that more or less retains its purchasing power over time, though in many cases fiat fails to do so.

This is the start of where the notion of Bitcoin as a currency already begins to fall apart. If you’re looking to spend your coins, you’d have to look up what businesses accept them in the first place, and you’d find that those are quite limited. El Salvador’s Bitcoin Beach may be living and breathing crypto, but not without some help from a philanthropist—in other words, it’s only sustained by a centralized gatekeeper. In the grander scheme of things, the country’s experiment with Bitcoin as legal tender stems from specific economic factors—namely, the inflow of remittances from abroad accounting for more than one-fifth of its GDP—which makes it, at least for now, a one-off.

In fact, why would you even want to spend your bitcoin if you also owned fiat or a stablecoin? The $5 worth of Bitcoin you spent on a coffee today may be worth $10 next week, and assuming the price was denominated in USD, you just lost out on another cup of coffee. The same applies to anything else you may be buying with bitcoin, from a pizza to a car. In other words, Bitcoin’s most appealing feature—its supply cap—may very well also be the biggest hurdle for using it as a currency. The limit drives the demand, the demand amps up the price, and if you expect the price to rise, why use it for transactions?

However, due to the volatility associated with Bitcoin, its purchasing power can swing far and wide in short periods of time. Meaning it already fails at properly fulfilling the requirements to be considered a strong store of value as well as provide the means to seen as a solid unit of account.

HODL to the moon

The reason why most people get involved with Bitcoin is not the same as why they carry fiat in their wallet. Only 24 and 12 percent of crypto investors said they planned on using their coins for, respectively, online and in-person purchases in a recent Bakkt survey. The most frequent aspiration among those purchasing crypto is not to “transact directly with each other without the need for a trusted third party,” using Satoshi Nakomoto’s words, but rather to make gains on investment or trading. Money is spent or invested, but with Bitcoin, “HODLing,” or holding on for your dear life, is the way, as the coin may shoot up to the moon and higher.

“To the moon,” a rallying cry of the cryptoverse, is a clear indication of this mindset. For many, Bitcoin’s value is not in its (relative) anonymity or blockchain’s transparency and security, but simply in its volatility. Such investors treat Bitcoin as a speculative asset holding the promise of plenty. In investment terms, it’s a good idea to diversify your portfolio with instruments that can act as a reasonable hedge against not just inflation, but also the woes of centralized markets, which are increasingly volatile as evidenced by the 2008 financial crash, among other events. However, looking at past history, Bitcoin has also failed this test as significant downward pressure on markets correlated with a depreciation of the coin.

For all that’s worth, though, the point is Bitcoin never really functioned as an actual currency. Consider this: While Bitcoin’s price action graph has been on an unsteady upward trajectory since early 2017, shooting up in 2021, its monthly transaction total stayed more or less the same over time, with no corresponding explosive growth—which would have hit the wall of Bitcoin’s low transaction processing capacity anyways. The point is, most of the transactions were made by people buying Bitcoin in hopes to sell it at a higher price down the road, and thus playing into its appreciation.

A bottlenecked system

Well, Bitcoin may fall short of being a currency, but so what, you might ask? It is still the banner that the cryptoverse is best known under in the greater world, it is the success story that kicked off the crypto gold rush and the industry’s ongoing maturing, and it still is the point of reference for virtues of decentralization. The problem is, not all of that is true.

Bitcoin was conceived as “a purely peer-to-peer version of electronic cash,” secure, anonymized, and free from the influence of any centralized entities. It was a challenge for the fiat-dominated global economic system as such. And yet, while never actually turning into a currency, the Bitcoin ecosystem appears to have also walked back on another key value enshrined in the original vision. It has a variety of bottlenecks, from its infrastructure to the market dynamics, which, in all fairness, are not necessarily a product of the coin’s own flaws.

At Bitcoin’s inception, certain people who had the capacity could become a miner, and the system was attempting to be inherently emancipatory simply through what was hoped would be a lower entry barrier. These days, though, mining difficulty has increased, which is a feature hard-coded into Bitcoin’s design (and one that played a key role in turning it into a speculative asset, while we’re at it). Mining takes significantly more computational power and energy, and is thus only accessible to large companies or hedge funds. This forced smaller miners out of the business, while others scale up their operations, turning the system more oligopolized. As a result, in early 2021, five companies controlled almost 50 percent of Bitcoin’s mining power, a potentially dangerous development.

Another bottleneck is in the distribution of wealth within the market. Only 1,000 accounts controlled some 40 percent of all Bitcoin in circulation as of early 2021. This does draw a parallel with the wealth distribution patterns, where the top one percent has over sixteen times more than the bottom fifty. Granted, money loves company, and the richer you are, the easier it is to get rich, that’s just how our economy works. And yet, even looking past the inequality aspect, this disposition paves the way to market manipulation, effectively leaving hundreds of small-time investors at the mercy of whales lurking deep down below.

The bitter truth is that Bitcoin has ultimately turned into a tool for wealth hoarding, and it’s done so in a self-perpetuating way: The more people join the speculative trading, the less likely Bitcoin is to ever be used as an actual currency. It is just another instrument for the rich to get richer, while the poor, as always, are left with the sharp end of the stick. As such, it weaves into and helps to sustain a system that has resulted in this regrettable situation and works to exacerbate it.

The biggest takeaway from Bitcoin’s story is that enthusiast communities building up an innovative tech project can indeed challenge the grasp of the powers that be on the global economic system—the very one that’s perpetuating inequality. Things don’t have to always stay the same, that’s the big lesson. But Bitcoin has largely caved in to the structural forces driving socio-economic injustice in the world.

Bitcoin has other serious flaws due to the fact that it is not a productive asset. As we’ve already noted, Bitcoin is volatile, has minimal utility, and has no intrinsic or underlying value, plus it is expensive and slow to transact with, offers no service and no social consciousness. Finally, the past decade has also shown us that Bitcoin is subject to price manipulation and collusion by individuals with concentrated large holdings (whales). It is latecomers (generally, average people) that suffer when markets fall and bubbles burst, these same people who cannot afford to lose. This does not sound like the solution our society, our economy or our planet needs. 

Granted, Bitcoin was a breakthrough back in the day, and the innovation and vision behind it deserve respect. Particularly the advent of blockchain, which is unquestionably one of the most important innovations of our lifetime. But for all of its glory, it’s time for the crypto community to acknowledge the obvious: The word “currency” doesn’t stick well to Bitcoin, and it’s not nearly as decentralized as it’s supposed to be. It kick-started the crypto party, but for the cryptoverse to grow and bring about the promise of decentralization, we need to get real about what it’s become and welcome a world in which digital currencies offer much more utility.

About the Author

Nick Agar is the Founder of AXIA, the organization building a digital ecosystem around AXIA Coin (AXC), the first-ever hyper-deflationary, asset-supported digital currency with global usability. For more information, visit

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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