One genuinely difficult question is whether bitcoin is a currency or an asset.
Bitcoin has several characteristics that are commonly associated with currencies:
- It is almost infinitely divisible
- It is fungible
- It is remarkably portable (more portable than any asset or currency to date)
- It is liquid (can be converted to traditional currencies 24/7/365 on one of several exchanges)
Despite that, my conclusion is that it is simpler in a variety of ways to consider bitcoin an asset for now for regulatory purposes. Once this characteristic is accepted then a lot of ‘issues’ with bitcoin start to fade.
- Bitcoin is hardly the only volatile asset class nor does it have to take on the burden of being the bearer of monetary policy or the unit of account the way national currencies do.
Nobody has said ‘derivatives in IBM stock aren’t going to succeed because it won’t be practical to price Club Monaco sweaters in them’
- Furthermore tax treatments become clearer. Gains from buying and selling on an investment basis will be short-term or long-term capital gains depending on the holding period. Gains from running a trading operation will be ordinary income.
Over a period of many years and in a narrow context, one might consider scenarios where bitcoin acts as a full-blown national currency. But that is not today's problem nor is it necessary for bitcoin to be a success.