Lord Keynes Would Be Proud
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Lord Keynes Would Be Proud

Last week, I tweeted something I honestly did not expect to get much attention:

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Earlier in the day, I released a video made by Ioni Appelberg, which I thought would get a lot more attention, especially by the BCH crowd. They both got attention, but this tweet got more.

In this article, I’m going to examine why this triggered so many people and how that reflects their economic beliefs.

Facts, Not a Recommendation

I’m a libertarian. I don’t care what you do with your money. Ownership means that you can do what you want. If you want to spend it on coffee, go for it! If you want to hoard your money until you die, that’s fine, too.

I don’t presume to tell people what to do, what I tweeted was a strategy that’s demonstrably economically rational and convenient.

The economic facts are these:

  1. Paying with a credit card costs less for the consumer than Bitcoin, despite costing the merchant more. The merchant pays the fees in a credit card transaction (2–3%). The consumer pays the fees in a Bitcoin transaction. The merchant may, in addition, pay fees for conversion to fiat.
  2. Paying with a credit card has benefits for the consumer that Bitcoin does not. These include consumer protection (you can request a chargeback), points/cash back, signup rewards and 25–55 interest-free days of not having to pay the bill and benefiting from any price rise in that time period.
  3. Credit cards are accepted in way more places around the world than Bitcoin.

There are some exceptions to the above. For example, using purse.io means that the consumer gets benefits in the form of discounts that may make it worthwhile to suffer the inconvenience of having to wait. If you’re carrying debt on your card, the 25–55 days are not interest-free. And of course, there are certain use-cases where credit cards can’t be used, but Bitcoin can (darknet, international remittances, micro-payments, my seminar or Tone’s conference).

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Other than these exceptions, credit cards payments are more convenient and economically rational. This isn’t even taking into account the tax consequences, the user experience or the possible endangerment to your Bitcoin privacy. The economically rational and more convenient thing to do is to use a credit card.

Let me put it another way. If you believe Bitcoin will go up in value over the long-term, the method of payment strategy from the tweet above will make you richer by at least 3% of the value of the transactions than on-chain transactions.

Social Coercion

So why are so many people up in arms about this? Why are they acting like I’m some sort of heretic that should be burned at the stake for revealing obvious economic facts?

This is an interesting question as the on-chain-transaction-for-everything strategy will demonstrably make people poorer. Why do BCHers frown upon something that will make an individual richer? Why are they ideologically driven to coerce people to pay more for the same good?

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BCHers believe that spending is what makes their coin valuable. As I outlined here, they are Crypto-Keynesians who believe that their network increases in value when more people use it as a method of payment. While individually, the strategy above is economically rational, they believe that collectively, the same strategy results in a decrease in the value of the network. In other words, they believe individual optimization results in a Tragedy-of-the-Commons.

This belief is exactly that of Keynesians who constantly urge people to spend despite saving often being the economically rational strategy.

Browbeating people into doing what’s against their own interest to benefit the collective interest is squarely in the realm of social coercion and moral policing. The shaming, bullying and intimidation are so blatant because they would rather sacrifice individual liberty at the altar of their Keynesian creed. People behaving this way need to turn in their libertarian/anarcho-capitalist/voluntarist cards.

In other words, BCHers don’t believe in individual sovereignty. They would rather coerce people into acting according to their economic beliefs.

Keynesian Dogma

These Crypto-Keynesians believe that the velocity of money is what matters. Keynesian dogma is that increasing method of payment usage or getting people to spend are how value is created. In other words, BCHers believe the value of a network comes from both the speed and quantity of transactions.

Like most Keynesian beliefs, this is based on the premise that aggregate statistics are an accurate reflection of reality and that individual preferences don’t matter. Keynesians make fanciful, meaningless aggregate statistics and pretend they reflect the health of the broader economy. To a Keynesian, money spent on a Ponzi scheme or life-saving surgery are equivalent as long as the aggregate statistics add up.

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This same philosophy is why BCHers are so intent on getting more merchants to accept Bitcoin as a method of payment. Their belief is that increasing aggregate spending will create network wealth.

The 9+ years of Bitcoin history stand in contrast to this belief. If aggregate spending were the key to network value, then we would expect that a shutdown of a major merchant would cause the price to go down. But in 2013 when the Silk Road was shut down, the value of Bitcoin went on an incredible bull run over the next 7 weeks (~$80 to $1100). In addition, new merchants adopting Bitcoin for payments over 2014-2015 did not cause any increase in value.

Payments are not why people buy Bitcoin. Credible long-term scarcity is why people buy Bitcoin. In other words, people want Bitcoins because they see it as a good store of value.

Spending is Selling

I suspect the real reason so many people were outraged by my tweet is because I questioned their core beliefs. Like Keynesians, BCHers believe that they’re doing something good when they spend.

There’s nothing wrong with spending, but BCHers have elevated this to a virtue. Spending is not a virtue in of itself, unless you’re a Keynesian.

Spending Bitcoins is the same as selling. A spender is essentially preferring the good or service over Bitcoins. This is the rational thing to do if you actually prefer the good or service, but is irrational behavior if you do not. The tweet above is advocating for a strategy that gets the same good or service for cheaper, so spending Bitcoins directly in those situations is economically irrational.

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There could be secondary effects that add enough value to make that premium worthwhile and that’s the usual argument from the spending-is-what-drives-value people. For example, perhaps a merchant, after learning about Bitcoin and seeing how it brings in extra business, will not sell the Bitcoins right away and instead hold them, utilizing Bitcoins as a store of value and thus increasing Bitcoin’s value. This is what I call the “hopeful adoption” strategy.

Perhaps, somewhere, someone once did adopt as a result of being a merchant, but there’s no real evidence this is the norm. Many companies stop taking Bitcoin after a while because the costs of accepting the payment are too high. If they were keeping the Bitcoins, the cost of accepting Bitcoin wouldn’t be much more than the fixed cost of adding the payment option in the first place. These merchants stop taking payments because the costs related to converting Bitcoin back to fiat (usually through a payment processor like BitPay or Coinbase) are simply not worth it. Hopeful adoption simply does not have a good ROI.

Instead, what typically happens is that payments to such merchants have the same effect as selling Bitcoin, which drives down price. Far from virtue, what BCHers are doing is signaling to the market that they don’t want to hold.

Merchant Adoption

Merchant Adoption doesn’t necessarily increase network value.

A merchant that utilizes Bitcoin only as a method of payment is not that useful to the network. Sure, you can sell your Bitcoins for goods or services, but you are paying for that convenience in the form of not getting the benefits of other payment methods. There are no secondary effects for Bitcoin because a merchant using Bitcoin only as a method of payment is going to sell right away for fiat, usually in an automated fashion using a payment processor like BitPay or Coinbase. A purchase to a merchant like this is the same as a sale of Bitcoin and this means there’s additional supply driving price down.

There are merchants that, while not offering incentives, do keep the Bitcoin that they receive. These are merchants that use Bitcoin as a store of value. They’re using Bitcoin as a method of payment because they want Bitcoin as a store of value. The merchants that don’t sell make a transactions neutral from a supply/demand perspective.

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There are still other merchants that incentivize buying with Bitcoin. Whether they offer discounts, make it cumbersome to use other payment methods or refuse other payment methods entirely, these are the real adopters. They want Bitcoin as a store of value and are willing to pay a premium to get it. This leads to customers buying Bitcoin to obtain the good or service and purchases with this merchant create additional demand for Bitcoin driving up price.

The Keynesian spend-your-way-to-prosperity gospel of BCH does not distinguish between these three types of merchants. A merchant that utilizes Bitcoin as a store of value is qualitatively different than one that does not and treating the whole category as if they already want Bitcoin as a store of value is an assumption only a Keynesian could make. The behavior of the merchants after the transaction, the unseen part is what determines whether they’ve actually adopted Bitcoin.

In other words, desire by the merchants to use Bitcoin as a store of value has to come first.


Economics is the study of unseen effects instead of just the seen. Watching merchant adoption numbers go up is an easy metric for people to see and cheer on. Much like other Keynesian statistics, a lot of information gets lost when aggregated and this is true of method of payment.

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The BCHers have adopted Keynesian coercion and continue to shame/bully/excommunicate people that don’t share their faith in aggregate statistics. Their behavior is anti-liberty and reflective of the centralization of their coin.

It’s possible that BCHers are right and that you really need lots of aggregate spending to make a currency more valuable, in which case we’ll find out over time. But there’s a lot of evidence that BCHers, especially their leaders, don’t actually believe any of this as they refuse to put their money where their mouth is.

Store of value is what makes Bitcoin valuable and it’s only when merchants use Bitcoin as a store of value that their method of payment adoption makes a difference. The BCHers have it all backwards and are attempting to coerce their way to prosperity. Good luck with that. Their Lord Keynes would be proud.



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