Are Crypto Coins Money?

I suppose the answer will depend on what money is.

Why do we need money?

We sometimes think the barter system involves trading fresh salmon for deerskin coats or a bag of grain. That is a barter system, but so is ours; we trade money for what we want and trade our skills and efforts for money.

Why you use money

Money allows us to overcome the biggest defects in the barter system.

  • Money is easier to carry around than fresh salmon. –Convenience
  • Money lasts longer than fresh salmon — Store of Value
  • The person who has what I want might not want fresh salmon. – Medium of exchange
  • Nobody knows how much a fresh salmon is worth – Unit of account

Money saves us a lot of time and trouble whenever we need something.

How does crypto work as money?

First of all, each lives on a blockchain. Bitcoin and Ethereum and a few others have their own network and their crypto is called a coin. These coins are earned, mined is the term of art, and are restricted in number. Tokens are on someone else’s network, and value is assigned rather than earned. You should note that most permit infinite production. Their price changes as people buy and sell.

Coins are closer to money than tokens.

With some latitude about what the word means, they can be considered to provide a store of value. If we look at recent volatility, though, that option seems debatable.

They are pretty much useless as a unit of account. Even Tesla has stopped accepting them to pay for a car. Businesses like predictability, and if you buy a vehicle when Bitcoin is $68,000, Tesla will be disappointed when it drops to $37,000. It’s hard to be profitable when your unit of exchange has an unknown value.

Convenience – not so much. they are difficult to trade, and fees to exchange them (the gas) can be substantial.

They are, however, becoming a medium of exchange. It is unlikely the tokens will fit the idea of money, but some coins will. If they can develop ways for merchants to use their coins, they may prosper. From the 19,000 or so choices today, there will likely be fewer than 50 when it settles out. The trick will be to have a way to exchange the few that remain for each other. Much like the foreign exchange problem now.

The crypto market is not flat.

I have seen an estimate that 50% of Bitcoins are controlled by five entities. The whales. We have seen how the LUNA was manipulated into extinction recently. When the people involved are not evenly matched in terms of capital and knowledge, the smaller participants are at a considerable disadvantage.

Why do people choose to own crypto now?

I was thinking of using the word investing for a second there, but that is not what most people are doing. They are speculating. Hoping to find a buyer at a higher price. There is no certainty such a buyer will exist, and you cannot “earn-out” if one does not appear. There are no earnings.

The Future

It is challenging to see the intrinsic value of tokens. Coins that are native to their particular network have opportunities. As these few networks add services other than the coins themselves, we will begin to see the strength of the blockchain, and that will be exciting. There is the potential for a real business here.

For now, though, you have to believe you can sell at a higher price to make the purchase attractive.

Warren Buffett and Charlie Munger dealt with the issue recently. Buffett’s attitude was simple. If you offer him all the Bitcoin in the world for $25.00, he would refuse to write the cheque. This video is worth watching both with respect to Bitcoin and how he sees investing. It’s about seven minutes long.

He looks for his investments to produce lasting value.

The bits to take away

Crypto, especially the tokens, are speculative instruments. They are not and cannot be investments in the usual sense.

Investments involve the production of disposable cash flow from operations. No crypto situation does now, but a few have the opportunity.

For complete diversity your portfolio might wisely include a sliver of crypto.

I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at

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