While I often discuss Bitcoin as a Store of Value and Means of Exchange, I very seldom speak about it as a Unit of Account.

Why?

What does (or doesn’t) this mean? Does money not have to be a unit of account, and if it isn’t, can it still be called money?

Bitcoin is a GREAT Store of Value.
It’s a fair Means of Exchange.
It’s a poor Unit of Account.

The only place I use Bitcoin as a Unit of Account is when measuring the value of my altcoins. Admittedly I use it rather often in that way (daily), but the majority of the world doesn’t bother with that, the majority of the world doesn’t even know what an “altcoin” is.

Lost in semantics and bias

Oh how very human we are!

How we love to pigeonhole things. How very uncomfortable we feel when something does not fit into the neat little boxes of our own world views!

So when I tell you this...

The simple fact is that IT DOES NOT MATTER whether Bitcoin is a Unit of Account or not.

... does it make your skin crawl; perhaps just a little?

Truly, how does it change your life whether Bitcoin is publicly acknowledged as a Unit of Account or not? How does it change your attitude towards Bitcoin? How does it change the nature of your investment?

Words DO HAVE power! They can send nations to war, they can turn entire population groups against one another, they can make you feel the elation of romantic love or the bitterness of hatred. But they remain just WORDS. A description of the thing does not alter the fundamental nature of the thing. A description is subjective: fallible to bias, points-of-view, background knowledge and a host of other influencing factors, not least of which is the temporal factor...

The Temporal Factor?

Rest easy. This time I don’t require you to change your world view and accept a new reality which I’m about to describe to you. If you wish, you may stay in the comfort of you cocoon - the end result will be the same.

Why?

Because Bitcoin will become a Unit of Account. You’re probably going to witness that happen.

How?/When?/What?/Where?...

Right now we measure the value of our Bitcoin in USD - e.g. “The value of 1 BTC is $18000”. We use other currencies too, but the main one we use when conversing with each other is USD.

We do this because USD is the standard international Unit of Account. USD is not only the language of international monetary exchange, it’s also the means of that exchange. It was forced into that role by some very sneaky post-WWII trickery, which obviously worked. So everything else is measured relative to USD, in USD. It's the Unit of Account, the Means of Exchange, and even the Store of Value. But make no mistake, USD will not wear the hat of “Primary International Currency” forever!

Even without cryptocurrencies in the equation, there are strong moves to disrupt the USD-based global economy, most notably by Russia and China. While Americans and their sheltered upbringing of anti-“Commie” propaganda may find this a bitter pill to swallow, the nations of the East are absolutely capable of toppling Uncle Sam from his pedestal, and are actively already starting to do so. But I digress, this isn’t a post about geopolitics, so I’m going to climb off that thought train at this station.

Any crypto-anarchist worth his or her salt is aware that fiat currencies have started to enter the final runaway phase, or at least the penultimate phase. This is the phase in which increasing amounts of monetary and fiscal policy interventions are required, in which increasingly drastic measures must be taken to prevent the economy from imploding, derailing or just running completely out of the control of the government and the reserve bank. In fact, any economist worth his or her salt should know that, yet most mainstream economists remain deliberately blind to the fact.

When the economies do run away, and they will, money as we know it will lose its value as a Unit of Account. A bread roll will cost $0.50 today, $2 tomorrow, $10 next week and $1000 next month. As a Unit of Account, fiat currencies will become worthless, their values will be declining too rapidly to have meaning. This scenario is know as hyperinflation, and it is the path along which we are headed. It is caused by a supply shock.

Source: Federal Reserve Bank of St. Louis, Real M2 Money Stock [M2REAL], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/M2REAL, December 11, 2020. Used with permissions granted by the Full FRED Service Terms - https://fred.stlouisfed.org/legal/#full-fred-terms

In the current case we can blame this supply shock on Covid-19 if we wish to, but that’s not a true picture. The most recent portion of the supply shock is due to GOVERNMENT REACTIONS to Covid-19, NOT the virus itself or its own immediate effects!

The supply shock is due to economy-killing lockdowns (which - surprise, surprise - don’t stop the virus in the long-term), despicable collusion with the rich in the form of hundreds of billions of dollars in corporate bailouts, the purchase of junk bonds, socialist helicopter money (a necessity, yes, but only a necessity because of government-induced inequality). I can go on, but I won’t, this isn’t a rant.

In addition to the government Covid-19 reactions, we have the deliberate long-term supply shock anyway. Without Covid-19, this would have led us to exactly the same place we are now, only a little later on. Look at that FRED chart prior to 2020: we were already on the path to destruction - at an ever increasing rate! This is something which has been going of for decades, Covid-19 merely pushed things ahead by a few months.

For now the latest inflation remains hidden and is kept controlled. This is because the increase in the supply of new money, by default, lands in the hands of the most wealthy. The ultra-wealthy hoard it or reinvest it in their own assets (e.g. stock buybacks), they don't spend it in the economy.

WHY ELSE DO YOU THINK THAT THE STOCK MARKETS ARE AT ALL TIME HIGHS IN THE MIDDLE OF AN ECONOMIC CRISIS?

The rich are using the new money to further enrich themselves. Bonuses, stock buybacks and other absolutely selfish non-helpful-to-the-common-man-or-economy expenditure of those funds is the order of the day. It's dead easy for the rich; the system is so utterly dirty and corrupt, that the common man is not even allowed to know which rich people got bailed out with his tax money!

No matter which way you look at it, we are going to see inflation at such a rate that fiat currencies will become useless as a Unit of Account and prices will just run away. Whether that hyperinfaltion is triggered by the rich cashing out and finally spending their gains in the economy, or from the complete crash of the stock market system, is irrelevant. Either way, it happens.
Source: Wolfgang Chr. Fischer, CC BY-SA 3.0 https://creativecommons.org/licenses/by-sa/3.0, via Wikimedia Commons

And when that finally does happen ladies and gentlemen, then the value of 1 BTC will no longer be measured in USD, it will be the other way round. Bitcoin will survive and be stable, fiat currencies will not. (Note: Bitcoin will be relatively stable in terms of other good stores of value, not in fiat terms!)

Note: I said fiat currencieS - plural. That’s because we live in a dollar-based world. When USD crashes, so will everything else. Even if the Russians and the Chinese are able to make a part of the global economy Rouble or Yuan-based, they will also collapse when the dollar does, because all their trading partners will be affected and the world will suddenly be too poor to sustain the previous levels of economic activity.

When that time comes, we will measure value in “houses” or “cars” or “ounces of gold”. But the most universally accepted Unit of Account will probably become Bitcoin itself. Or to be more accurate, the little satoshis by which Bitcoins are divisible. Nobody is going to talk about the price of a bread roll measured in "houses", that's just silly, they will use Bitcoin.

Conclusion

Forget the semantics, they don’t matter. Bitcoin is BITCOIN, it doesn't have to be anything else. It’s disruptive by design. It doesn’t fit into pigeonholes and it certainly doesn’t fit into the fiat money world order. Unit of Account or not, it’s going places. And while it may seem volatile now, it will seem positively smooth compared to fiat later on.

Call Bitcoin “money” if you like, call it something else if you don’t. The names are not important. What’s important is that the future of cryptocurrency looks like this:

Bitcoin will still be a GREAT Store of Value.
Bitcoin will still be a fair Means of Exchange, but smaller cryptocurrencies will better fulfil this role.
Bitcoin will become a better Unit of Account than most other asset classes.