Bitcoin Considered A Commodity By Central Bankers - Why? They aren't wrong...

Cryptographic Assets Are A Commodity, Not A Currency?

First, it was the SEC, then the CSA followed by a Chinese financial regulatory body, all considering Crypto Currencies and I.C.O. to be securities by law. Now the Central Bank of Mexico is choosing to view Bitcoin as a commodity rather than a currency. This actually makes sense, in that there is no practical way to use bitcoin as common currency due to its volatility today.


Even before these institutions began their commentary, from a trading and investment perspective, even from wall street, bitcoin has been viewed as a commodity and potential safe haven, likened to gold or silver. The economic concept of Bitcoin is to function as a store of value as much as a transactional vehicle. It's practical use case, however, is a function time and supply.

As the prices of BTC continue to rise and fall at an exponential rate, the volatility is a limitation in its current state. It would be impossible and down right silly to use BTC to purchase clothing, food etc, just the same as I would never carry around a satchel of gold nuggets to purchase essentials.

If BTC is priced at $4400 today and I purchase a car with it, I would leave profits on the table if the price rose further the following day. Likewise, if it fell, the dealership would be taking a loss on the sale of a car.

It would be the same as using gold priced today at $1300 only to have the price fluctuate by several percents tomorrow and the day after.

It's impractical and part of why central banks chose to leave the gold standard behind in favour of a fractional reserve system (which has it's pro's and con's).

This isn't to say that all cryptographic assets can't actually be used as a currency or that Bitcoin won't achieve an intrinsic value that eventually removes such volatility. It can be reclassified, but that is a function of time.

Investopedia: What is a 'Commodity'

A commodity is a basic good used in commerce that is interchangeable with other commodities of the same type; commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers. When they are traded on an exchange, commodities must also meet specified minimum standards, also known as a basis grade.

Investopedia: What is a 'Currency'

Currency is a generally accepted form of money, including coins and paper notes, which is issued by a government and circulated within an economy. Used as a medium of exchange for goods and services, currency is the basis for trade.

We can see how the basic definitions are quite similar, almost identical, but the key distinction to make is price volatility. Monies have a designated value as per the central bank and the fluctuations are a function of correlation to alternative currencies and economic health of a nation.

Commodities experience price volatility because their intrinsic value is a function of the supply and demand, in the case of Bitcoin that is determined by a relatively small community of users, investors, and traders. It is a speculative asset, but as its adoption spreads, we may see the very transition necessary to officially classify Bitcoin as a currency. Patience pays.

Interesting times ahead, the best thing we as participants can do is keep studying and stay informed.

Previous Articles:
ADSactly Crypto Roundup
Technical Vs. Fundamental Analysis
Trading Vs. Investing

Not a financial adviser, understand the risks associated with trading and investing. Consult with a professional. This article is an educational resource only.