Bitcoin And Baseball Cards

I saw this piece last week on the soaring price of baseball cards and naturally started thinking about Bitcoin. The article begins with a story about how a rare LeBron James trading card (it’s all sports cards, not just baseball cards) would now sell for over $3 million, more than ten times its price in 2016. It then reports on how the prices for rare cards of other famous players have also gone through the roof, with even cards of less great players selling for several million dollars.

The reason this got me thinking about Bitcoin is that the price of Bitcoin has also been soaring. In fact, it has risen considerably faster than the price of baseball cards, increasing more than a hundredfold over the last five years.

Bitcoin as a Currency

Bitcoin proponents see this soaring price as vindication. After all, if the price of a Bitcoin has risen more than a hundred times in just five years, then this digital currency must be extremely valuable.

There is no doubt that Bitcoin investors could have become rich through their investment. A $10,000 Bitcoin investment in 2016 would be worth more than $1.4 million today. If they had made their Bitcoin investment earlier, they would be even richer today. In that sense, at least for now, we can say that someone would have been right to buy Bitcoin as an investment.

But does this mean Bitcoin is establishing itself as a currency? In fact, Bitcoin’s soaring price argues the opposite.

One of the main features that we value in a currency is stability. This is the basis for the obsession of the Federal Reserve Board and other central banks with inflation. While they have often carried their concerns about inflation too far, needlessly slowing the economy and throwing people out of work at the first vague hint of accelerating inflation, there is a real logic to their concern.

Inflation can be a seriously disrupting force in the economy. In the most extreme cases, such as the German hyperinflation after World War I or the more recent episode of hyperinflation in Zimbabwe, the currency becomes worthless as a medium of exchange. There are famous stories in Weimar Germany of people taking wheelbarrows full of money to the bakery to buy a loaf of bread. An economy cannot function with a currency whose value plunges by the minute.

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