Floating vs. Fixed Exchange Rate
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One last thing for today. I think the only way a crypto operates as a true currency is if it is Fixed. As long as it is Floating it will only survive as a commodity.
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Hey, that’s brilliant! Let’s destroy it’s upside potential by arbitrarily pining it to some ‘true’ currency which has a floating value to begin with. I suppose you’ll have a government step in to do this by offering to exchange it for their currency? That’s just ingenious. I wonder why someone hasn’t thought of it sooner! Hell, I’ll start today! I’m pinning the price of 1 FTC to 1 US penny. Anyone who wants to trade in their FTC can get 1 penny from me.
What? You think it’s worth more? Well according to Horizon, it only operates as a true currency if it’s worth 1 penny.
What’s that? You’re going to pin it to 2 pennies? Well fine. I’ll pin it to a nickel.
What? A dime? Fine. A quarter.
What now? 50 cents? Fine. Sell them for 50 cents. I’m still offering a quarter.
What’s that? You sold all yours and people aren’t accepting less than 50 cents for them? Gee. Maybe I should have raised my prices since we’re operating in a free market…
Do you get the point yet?
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I don’t even know what a “true” currency or “fixed” exchange really is. Every currency operates at a variable exchange rate between each other. The difference is that instead of devaluing the currency within a market [which would be a country], the market just appreciates the price of goods and services [inflation]. . .It’s the same thing just from the opposite spectrum.
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Kevlar, I never said what to ‘pin’ it to. Ideas?
I’m sure most would say right now the biggest reason the mainstream is hesitant to use a crypto to ‘buy things’ is its ever-changing value which proves to be fiat’s volatility x1000 at this point…
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Yes, I’ve got an idea.
I’ll value it at whatever someone on the other side of the trade is willing to value it at. If you and I agree to value BTC at $1,000, then it’s fixed at $1,000. Done.
The problem is a solved one. It works as a currency because people agree to value it. Pinning it ignores the fact that it’s operating in a free market where people are able to value it however they choose.
Yes, I understand it doesn’t work as MONEY because it doesn’t work as a store of value long term. You know what else fits that description? Fiat-currency. Yet it’s worked as currency just fine. Strange, isn’t it?
Crypto-currencies remove the need to pin it to anything because they are deflationary. You don’t need pinning when you have deflation.