@ mattaroo
2025-03-06 18:01:04
FROM THE DESK OF PARKER LEWIS:
Bitcoin is going up forever, and buying things with bitcoin is perfectly logical. Those two statements are not in conflict. And this is important because many people (maybe most) think that spending bitcoin is irrational. Why do they think this? For a combination of reasons:
If bitcoin is going up, why would you ever part with it? It's going up and if you spend it, you're losing future "gains".
There are tax consequences to buying things with bitcoin. If you buy something with bitcoin, there's a capital gain tax because it's treated as if you sold it for tax purposes (so you're actually paying more).
Neither of these are rational reasons not to spend bitcoin. Why?
Point one is irrational because it's a different dilemma than you think. It actually applies to every spend vs. save decision, regardless of whether you are spending bitcoin or fiat. For example, if you are spending fiat, you could forego that consumption and save in bitcoin instead. Your economic calculus is just definitively different when faced with the dilemma of spending a money with a finite supply vs. one that constantly loses its value. It is true that whether (or not) you are willing to spend your bitcoin is a better consumption test than saving or spending fiat. But, everyone needs to consume every day.
Point two is irrational because you only have a capital gain if your money appreciated in value. The flip side of that is that you only have a capital gain if your money didn't lose purchasing power. Yes, it would be better if policy changed to remove capital gains taxes from all bitcoin currency transactions, but whatever you are buying is not more expensive because you're paying a capital gains tax. How could that be? Because you actually have more money left than had you taken the alternate path of saving in fiat. It's more expense to save in fiat and spend in fiat. The math is conclusive, so is the logic.
The foundation of fixing this logical dilemma: if you think spending bitcoin is irrational, you probably just have too much fiat. And before we go further, volatility is real. You have to manage it. If you have limited understanding of bitcoin, your ability to tolerate bitcoin's volatility is necessarily lower than someone who has been saving in bitcoin for years and who has a lot of experience managing volatility (and has more knowledge of bitcoin than you). So what I'm about to explain, while 100% logical, does not apply to everyone because everyone's knowledge of bitcoin is not equal, nor is their ability to tolerate the volatility.
Now, let's consider a few examples in comparison. If you have 99% of your savings in fiat (a form of money that loses its value because it is easily printed) and 1% in bitcoin (a form of money with a finite supply that can't be printed), yes it is very logical to save your bitcoin and spend your fiat. You have a lot more fiat than you do bitcoin. But if you have 99% of your savings in bitcoin and 1% in fiat, you are happy to spend your bitcoin. You've saved your money in bitcoin which stores value over time so you're in a better net position than the person saving in fiat.
Let's go to an even further extreme to make the logical point, specifically concerning the two false economic dilemmas. Let's assume you have 100% of your savings in bitcoin and 0% in fiat. By definition, you have to consume so you have to spend bitcoin. You have to spend it, either by buying goods and services with bitcoin or selling bitcoin to buy fiat to then buy goods and services. Dilemma one is invalidated. It's not really whether you should spend bitcoin. It's whether you should spend at all, (i.e. whether what you're spending money on is a good spending decision).
Everyone has both needs AND wants. Both are valid. Life is short. Never spending money is high time preference. But not all spending decisions are good decisions. In some cases, you should save. But in either case, if it's a good spending decision (which only you can determine), the dilemma of bitcoin going up in the future is invalidated. For an example, virtually all of my savings are in bitcoin. I needed to get the transmission on my car fixed. It was no question. I had to get the transmission fixed and given how little fiat I hold. I needed to spend the bitcoin. It didn't matter if bitcoin was going to "go up" in the future. I needed the utility of my car. In this case specifically, I sold bitcoin for fiat, to then spend fiat, so I could get a new transmission and so I didn't have to walk everywhere.
Which brings us back to false economic dilemma #2: capital gains. If you follow the logic, the capital gains consequence is both real and invalid to the dilemma of parting with bitcoin. To make this point, I will actually walk through the economic math. This is where the point of having too much fiat comes in if you think spending bitcoin is irrational. Scenario A: you save more in fiat over time and spend fiat. Scenario B: you save in bitcoin over time and spend bitcoin. This example assumes the extremes to make the economic point. 100% savings in fiat vs. 100% saving in bitcoin:
So what you might believe is a spending bitcoin dilemma is actually a saving fiat dilemma. Saving and spending are inherently related and regardless of the extreme (or allocation), the economic consequence (of choosing to save in a currency that loses value vs. saving in a currency that maintains purchasing power) doesn't change. In a more practical example, the cost of goods and services are "going up" from the present to the future in fiat terms (i.e. fiat inflation) and you need money that preserves purchasing power to offset fiat debasement. But more to this point, your spending dilemma is actually one of savings and in the real world, you only have capital gains to pay if your fiat savings lose value.
Now many of you might be thinking, "why don't you just borrow against the bitcoin and spend dollars." That's an entirely different economic calculus, and it does nothing to change the math or the economic logic of spending bitcoin. It is simply adding one more layer on top of it. Can you potentially financially engineer a better outcome by taking on leverage and debt and complicating your life that way? Potentially. But it doesn't change i) the consume vs. save dilemma, ii) the consequence of future upside to bitcoin (because you could have bought bitcoin with the leverage), or iii) the capital gains consequences (which are just shifted in time from present to future).
The bottom line is that the economic view that spending bitcoin is irrational is mathematically inconsistent. It's really a saving dilemma and you're just holding too much fiat. Now there are other logical reasons to spend your bitcoin which I will lay out but not elaborate on (each will be a future article):
If no one spends their bitcoin, there will not be tools that exist to spend your bitcoin and when fiat fails, everyone will need those tools to exist because bitcoin will be the only currency that works.
If a business wants to be paid in bitcoin and a customer has bitcoin to spend, spending fiat introduces unnecessary cost to the transaction which creates an economic inefficiency (more cost, no benefit)
If you value a business (i.e. the good or service it provides you) and you want that business to be around (to deliver you goods and services), if that business wants to be paid in bitcoin and you understand bitcoin, it is in your interest to spend the bitcoin because you know the business will be better off if you do, which makes you better off because you value the good or service of the business.
In conclusion, spending bitcoin is a false dilemma. It is really a savings dilemma. The math proves it out. If you hold this irrational position (which is only irrational if you understand bitcoin because volatility is real), you probably just have too much fiat. Now, I always like to reinforce that this is not a plea to spend your bitcoin. There is no moral imperative to spending bitcoin. Every bitcoin (and sat) is precious. Whenever your consume (or invest), make sure you spend wisely because that is what really matters.
Until next time. Best, Parker