The distributional consequences of Bitcoin

29 Pages Posted: 22 Oct 2024 Last revised: 4 Nov 2024

See all articles by Ulrich Bindseil

Ulrich Bindseil

European Central Bank (ECB)

Jürgen Schaaf

European Central Bank (ECB)

Date Written: November 02, 2024

Abstract

The original promise of Nakamoto (2008) to provide the world with a better global means of payment has not materialized. Instead, the focus has increasingly shifted to Bitcoin as an investment asset promising high capital gains. Promoters of this investment vision put little effort relating Bitcoin to an economic function which would justify its valuation. While most economists argue that the Bitcoin boom is a speculative bubble that will eventually burst, we analyse in this paper the impact of a Bitcoin-positive scenario in which its price continues to rise in the foreseeable future. What sounds intuitively promising or at least not harmful is problematic: Since Bitcoin does not increase the productive potential of the economy, the consequences of the assumed continued increase in value are essentially redistributive, i.e. the wealth effects on consumption of early Bitcoin holders can only come at the expense of consumption of the rest of society. If the price of Bitcoin rises for good, the existence of Bitcoin impoverishes both non-holders and latecomers. While previous discussions on the redistributive effects of Bitcoin assumed that badly timed trading was a necessary condition for losses, this paper shows that neither poor timing of trades nor holding Bitcoin at all are necessary for impoverishment under a Bitcoin-positive scenario.

Keywords: asset price bubble, wealth effect on consumption, redistribution, Bitcoin

JEL Classification: E21, E53, E25, G12

Suggested Citation

Bindseil, Ulrich and Schaaf, Jürgen Günter, The distributional consequences of Bitcoin (November 02, 2024). Available at SSRN: https://ssrn.com/abstract=4985877 or http://dx.doi.org/10.2139/ssrn.4985877

Ulrich Bindseil (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Jürgen Günter Schaaf

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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