Hodl or Spend: Can Bitcoin Survive Without Both?
Here at Coinmama, we often see people buy Bitcoin for the long haul. Survey responses to a question that asked “why did you buy cryptocurrency” showed that around 70% of respondents were buying it as an investment or because they think it’s the future, while only 20% were buying it for everyday use. The rest fell into categories that ranged from making a specific payment to “just trying it out.” (Respondents were able to select more than one option.) These numbers represent a small shift from responses that were made on January 2018, when only 8% were looking to buy Bitcoin in order to spend it. It’s a sentiment mirrored by the staff at Coinmama, where the majority of us who have cryptocurrency—myself included—are HODLing (that is, Holding On for Dear Life). And, in fact, a recent look by Coin Metrics at the Bitcoin network showed that 4 million BTC hasn’t moved in at least five years. In other words, even as the percent of users who are buying cryptocurrency to pay for everyday goods is increasing, the overwhelming majority are not using crypto to pay for their coffee.
In some respects, I believe that those numbers are inevitable. After all, Bitcoin price volatility makes trading and investing particularly appealing. It’s hard to see the price spike from 1,000 USD to 20,000 USD in the span of a year, as it did in 2017, and not pity the fool who spent their coins. Even 2019’s smaller 10,000 USD climb from January to June favors people who are in it for the long-haul. The story of Laszlo Hanyecz’s very expensive pizza, for which he paid 10,000 BTC worth 100 million USD today, is famous. But Hanyecz isn’t the only one who spent their crypto, and it’s impossible not to say “what if” when we look at those cases—it’s simply human nature. (Hanyecz, by the way, is on the record as saying he has no regrets about his purchase, and continues to advocate for Bitcoin’s use as a currency.)
But the instinct to HODL raises some important questions. Namely, does Bitcoin have a future as a currency if the majority of people see it as an investment strategy? And if its potential as a currency stops being viable, how does that then affect its value as an investment? And perhaps most importantly, if the two are intricately linked—as I think they are—how do we as the crypto community advocate and promote the use of Bitcoin as both an investment piece and the currency of the future?
A Look at Bitcoin Adoption
2014 was an interesting year for cryptocurrency. In late 2013, the Bitcoin price crossed the 1,000 USD mark for the first time, launching cryptocurrency into the general public consciousness. By the time 2014 rolled in it had dropped back down below 1,000 and wouldn’t cross that point again for another three years (in fact, during that period it would drop beneath 200 USD), but what followed was a year of widespread and fast adoption, with companies as varied as Overstock, Expedia, and Newegg jumping to accept Bitcoin as a payment method. It looked like BTC was quickly gaining ground as a viable international currency. But by 2019, many of the companies that had been accepting it no longer were. Expedia quietly stopped accepting crypto in June of 2018, and Sandman, a Canadian hotel chain that jumped on the crypto bandwagon in 2014 has also stopped accepting it, despite still appearing on Coinmap. Meanwhile, the list of retailers that accept cryptocurrency doesn’t seem to have changed much recently, and the easiest way to purchase goods with crypto is to purchase a gift card to a specific store through a gift card site that accepts Bitcoin. It’s a two-step process that seems to defeat its own purpose: since it doesn’t promote Bitcoin’s use for transactions, it doesn’t promote adoption and even questions the functionality of BTC. It’s also a pain; you may as well convert your coins back to your local currency.
What’s behind this drop in adoption? It’s hard to say for certain, but it’s likely a combination of factors. First, there’s the question of demand. If most people who buy Bitcoin are holding onto their crypto, then is there really a need for it to be accepted in stores? Which leads to the problem of profitability. If only a tiny subset of customers are paying with crypto, then the overhead costs involved in establishing and then maintaining another method of payment simply may not be worth it if demand is low. And then there are the misconceptions that surround crypto. While many merchant services don’t leave vendors exposed to price fluctuations, Bitcoin’s volatility makes it seem like an unsafe bet for retailers.
But the factors above are all interlinked, and there’s a chicken-and-egg sensibility to them. If crypto users aren’t spending their coins, then there’s no reason for merchants to accept them. But if merchants aren’t accepting them, then there’s no easy way for it to become a widely used currency. If investors are HODLing, there’s little to ground Bitcoin in the real world and stabilize the volatility. And if the prevailing school of thought is that it’s unwise to do anything but hold for a long-term investment, you don’t want to be the only fool who spends their coins.
What is Bitcoin if not a currency?
But what is Bitcoin if no one is using it? And if our current pattern of sitting on our investment in-turn leads to an even greater decrease in practical, real-world use, are we simply creating a spiral through which eventually Bitcoin is no longer a viable currency?
And, if Bitcoin is eventually only used as an investment—essentially rendering it an asset—what is it valued against? We laugh at the people who spent their crypto in 2014, but if the Bitcoin price drops down due to its lack of grounding, those are the people who will have the last laugh. Not only that, but it really will prove to be the bubble naysayers claim it is.
This isn’t to say that cryptocurrency is doomed tomorrow if we all keep HODLing. As a tamper-proof, peer-to-peer currency that transcends both borders and banks, Bitcoin’s potential to change the global financial system is, hopefully, too strong to break. Over the past few decades, we’ve seen that there’s both a necessity and a desire for a global decentralized currency, a desire that far predatesBitcoin itself. Just as with many new disruptive technologies (think the internet, email, or even computers), adoption and trust take time to develop. But as early adopters—as a community that already sees the immense value in Bitcoin—we need to do our part to ensure that Bitcoin’s potential is realized as fast as possible.
When You Buy Bitcoin: Balancing HODLing and Spending
What is the solution to maintaining Bitcoin’s value in the long term? And what can we as a global community be doing to ensure its value and adoption rate increases? The answer may be to start treating it less like a stock and more like a currency. Just as common financial wisdom holds that you should save or invest 20% of your salary, use 50% for necessities, and 30% for discretionary items, maybe we should strive to strike a crypto balance. Those percentages may not make sense for crypto, but what if the HODLers of the world would agree to spend 10% of their coins each time they buy Bitcoin? What would a figure like that—at a time when 24-hour trading volume is 17 Billion USD—do for wide-scale adoption, for stabilizing the volatility, and for promoting cryptocurrency not only as a long-term investment but also as a global, borderless, decentralized currency?
It’s a scary leap to let go of your Bitcoin, especially if you’ve been holding onto it for a long time and have seen it appreciate significantly in value. And I’m not suggesting you let go of your nest egg. But think about what would happen if you spent 5% now, and 10% of future purchases. I’ll think about doing the same.