Why she won't use crypto (at least for now)

My wife illustrated a concern of hers about increasing prices of crypto, why she's currently unlikely to use it to actually buy things. She said to me:

Imagine buying a really nice dining room table and chairs for, when I buy it, 3500 USD worth of some cryptocurrency. Then that cryptocurrency increases tenfold, relative to the dollar. Now I've got a table that costs 35000 dollars! I could've waited and spent one-tenth of that cryptocurrency to get this dining room set now, and have a lot left over! I feel like I've spent 35000 dollars for a table and chars, and I can't recover access to that money. No one would buy the dining room set from me now for 35000 dollars!

It calls to mind the famous Bitcoin pizza story, in which Laszlo Hanyecz bought a pizza on 22 May 2010 for 10000 BTC. At the moment of this writing, that's worth 399,603,700 USD. Check out this reply for an interesting tidbit of that history:

Re: Pizza for bitcoins?
November 29, 2010, 12:24:57 PM

Will this eventually become the world's first million-dollar pizza?

Laszlo has no regrets, for reasons he explains in the article I referenced above, but he's in a different frame of mind than my wife, when it comes to crypto.

I'm just thinking out loud here; any comments or perspectives are welcome.

Deflation and Inflation

In a deflationary period, the value of currency effectively increases, making a purchase for something in the future generally more desirable than purchasing now. Why buy a car or refrigerator now when it will cost less in six months? People and businesses tend to spend less in deflationary periods, given the expectation that goods and services will be cheaper in the future.

That's not a scenario we find ourselves in often. Currently, many people and businesses anticipate serious inflation soon (anyone reading this buy Bitcoin as a hedge?). In an inflationary period, the value of currency effectively decreases, making a purchase for something today generally more desirable than purchasing in the future. Why buy a car or refrigerator six months from now, when I expect it will cost more?).

I won't say people and businesses actively spend more in inflationary periods, but I do believe in periods of lower levels of inflation, people are more likely to just "go about their business," while in periods of higher inflation - in which they're more aware of the loss in purchasing power - they seek higher returns on their money. I'm old enough to remember the latter part of the 1970's, and my father putting money into CDs at the bank, earning 20% per year. My wife's father did a similar thing; he was paying 3% interest on the mortgage, with CD's at the bank paying him 20%.

I'm far from an economic expert; I just find it interesting that both deflation and inflation can lead to people holding on to their money, instead of spending it. I don't pretend to understand how the actions of all participants (i.e., you and me) yield "the economy" or "the markets".

You have to know what it is that's experiencing inflation or deflation: an economy as a whole, a given currency? Bitcoin and similar currencies are increasing in purchasing power (effective deflation?) while the US dollar, with one-fifth of the entire supply having been created last year, will lose purchasing power (effective inflation).

My wife's experience with money is almost exclusively with the US dollar in the US economy. Except for buying crypto, so is mine. I can understand where she's coming from. I've made exactly one purchase using crypto (a book), and the value of that currency has changed from 7.07 to 9.35 USD (32.24% increase), as I write this.

I don't regret it at all, though; I hope if I ever get paid in crypto, it increases in value, so why not spread that ethos? In the meantime, I've a lot of reading and thinking to get back to.

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Hehe, true. I'm glad for our sake she was just using that as an illustration of how she looks at things. We didn't actually buy a table. In November, I was buying the Bitcoin. :-) If we had bought something expensive now with crypto profits, it probably wouldn't change how she'd feel in the future ("that table is now a 700000 table! Gah!").

What she's getting at is she, like a lot of people, want a sense of "I know what this stuff is worth, and if I let some of it leave my hands today, I'm not giving up on the purchasing power it could provide me in the future." Would you be happy if you'd bought that 10000 BTC pizza in 2010? He had his reasons for doing so, and he stands by them. I know of another early miner who liquidated his assets to buy an apartment. He would be a billionaire today, but isn't, because he spent his Bitcoin to have a roof over his head.

For many people, big price swings upward serve only to remind them that those prices can swing down hard, too. And we can't deny that this frightens a lot of people whom we'd like to gain exposure to cryptocurrencies. It's also something we have to remember ourselves; we can't get complacent about upward moving prices.

I confess I do wish I'd bought more Bitcoin in November. And March. :-)

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