M1 vs m2 bitcoin
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Our first assumption is that bitcoin will derive its value both from its use as a medium of exchange and as a store of value. As a footnote to this assumption, it should be stated that bitcoin's utility as a store of value is dependent on its utility as a medium of exchange.
Predictions and analysis
We base this in turn on the assumption that for something to be used as a store of value it needs to have some intrinsic value, and if bitcoin does not achieve success as a medium of exchange, it will have no practical utility and thus no intrinsic value and won't be appealing as a store of value. Our second assumption is that the supply of bitcoin will approach 21 million as specified in the current protocol.
To give some context, the current supply of bitcoin is around The key part of this assumption is that the protocol will not be changed. Note that changing the protocol would require the concurrence of a majority of the computing power engaged in bitcoin mining. Our third assumption is that as bitcoin gains legitimacy, larger scale investors, and more adoption, its volatility will decrease to the point that volatility is not a concern that would discourage adoption.
Our fourth assumption is that the current value of bitcoin is largely driven by speculative interest. Bitcoin has exhibited characteristics of a bubble with drastic price run-ups and a craze of media attention in and But speculative interest in bitcoin, we assume, will decline as it achieves adoption. And our fifth assumption is that the use of bitcoin will never involve fractional reserve banking and that all means of storing bitcoin will be fully backed by bitcoin.
We will look at bitcoin as currency and bitcoin as a store of value. In order to place a value on bitcoin we need to project what market penetration it will achieve in each sphere. You are encouraged to form your own opinion for this projection and adjust the valuation accordingly.
The simplest way to approach the model would be to look at the current worldwide value of all mediums of exchange and of all stores of value comparable to bitcoin, and calculate the value of bitcoin's projected percentage. The predominant medium of exchange is government backed money , and for our model we will focus solely on them. The money supply is often thought of as broken into different buckets, M0, M1 , M2 , and M3.
M0 refers to currency in circulation. M1 is M0 plus demand deposits like checking accounts.
The Money Supply - FEDERAL RESERVE BANK of NEW YORK
M2 is M1 plus savings accounts and small time deposits known as certificates of deposit in the US. M3 is M2 plus large time deposits and money market funds. Since M0 and M1 are readily accessible for use in commerce, we will consider these two buckets as medium of exchange, whereas M2 and M3 will be considered as money being used as a store of value.
Citing the DollarDaze blog , we see that M1 which includes M0 in was worth about 25 trillion US dollars, which will serve as our current world wide value of mediums of exchange.
From the same DollarDaze blog, we see that M3 which includes all the other buckets minus M1 is worth about 45 trillion US dollars. We will include this as a store of value that is comparable to bitcoin. To this, we will also add an estimate for the worldwide value of gold held as a store of value. While some may use jewelry as a store of value, for our model we will only consider gold bullion. The US Geological Survey estimated that at the end of , there were about , metric tons of available above-ground gold.
The chart below also attributes the total amount of M2 circulating at the end of each presidency.
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The trend is unfortunately again clear, the monetary policies of each successive president sees the expansion of the M2 money supply more than the last. There is one exception though: it would appear that George H. Bush printed the least amount of money and bucked the trend. A shocking stat from the by-presidency analysis of M2 expansion: The Trump administration oversaw times the growth of M2 as the first Bush administration. However, in relative values, these M2 growth values compare differently.
Bush, in terms of percentage actually grew M2 the most. However, this is not as surprising, because a major component of M2 is M1. Team Red prints more M2 and at about a 12 percent quicker rate per year. Both M2 and the portion of M1 embedded in the money supply increases by presidency is displayed in the chart below:. The data from M1 and M2 expansion is clear, while each side of this current political conflict prints more here or there depending on how it is measured, the general tendency is painfully obvious: the monetary differences of each major American political party have been negligible over the past few generations.
The American public at large appears to be caught up in a Fiscal Illusion. These newly-created dollars are seeking refuge wherever they can retain value. Asset inflation and real inflation are now widely recognized as completely decoupled from typical goods and services inflation, which is often represented as the heavily manipulated CPI consumer price index.
Simple supply-and-demand theory explains why the market price of dollars is dropping against scarcer goods such as gold and bitcoin: because the money supply M1 and M2 is aggressively increasing. These steep downward dollar price trends against gold over plus years and bitcoin over plus years align nicely with supply increases of the USD seen in the M1 and M2 data sets.
This value and supply alignment also corresponds well with the Quantity Theory of Money , originally put forward by Nicolaus Copernicus in Other monetary theories to explore and study on this topic include:.
The data and trends are as clear as can be: Irrespective of who comes out ahead in the vote tally, the results of the Electoral College or even who holds the high office of the presidency, the money supply in the United States will likely continue to increase. The Red vs. Blue Team hysteria that we are seeing, with regards to differentiating monetary policy in America, is baseless. This is a guest post by Tyler Bain.
As Red And Blue Debate, Green Printer And Orange Coin Always Win
Press Releases. Learning Bitcoin. Explore over 4, video courses. Question: If the Federal Reserve decided to include virtual money like Bitcoins in its measure of the money? M1 would fall. M1 would rise and M2 would remain constant. M2 would rise but M1 would remain constant.
M1 would rise. Create your account View this answer.
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The correct answer is D : M1 would rise. See full answer below. Become a member and unlock all Study Answers Try it risk-free for 30 days Try it risk-free. Ask a question Our experts can answer your tough homework and study questions. Ask a question Ask a question. Search Answers. Learn more about this topic:. Try it risk-free. What is Money? List and explain two reasons why the Fed cannot The fundamental function of money is to The asset demand for money is almost closely One benefit of using money to facilitate The Black-Scholes formula gives the price of an Which of the following is not used in the When you purchase a put option while still A protective put written on a portfolio rather A share of stock can be thought of as a call Debt holders can be thought of as owning the Which of the following is NOT a factor that a A stationery company plans to launch a new type To evaluate a capital budgeting decision, it is Unfortunately for most of us, making money isn't as easy as we would like for it to be.
This lesson explains the story of money, including how banks and the Federal Reserve make more whenever they want.
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While money has been around since ancient times, it has taken different forms. In this lesson, you'll learn about representative money, why it's useful, and why it has limitations. A short quiz follows the lesson. The Functions and Characteristics of Money.