Bitcoin is becoming more and more expensive, and holding the currency has become a symbol of status?

Bitcoin, a popular cryptocurrency that is also considered digital gold, performed well last year. In the past year, the price of Bitcoin has increased by more than 1,500%, making it one of the best investment options. The rising price of this digital asset has made holding the currency a symbol of social status.

Bernstein Research compared the Chinese liquor, which represents social status, with the Bitcoin economy. To further illustrate the factors driving the increase in demand, the researchers also compared the traditional Chinese medicine donkey-hide gelatin with virtual currencies.

The analyst mentioned:

Bitcoin does not offer investors cash flow or other advantages, but its total supply is fixed, so its price is driven by speculation about potential demand.

The key is the limited amount

The upper limit of Bitcoin is 21 million. After reaching this limit, Bitcoin can only be used for transactions and mining will stop. As the number of mined Bitcoins continues to increase, the difficulty of mining will also increase. Therefore, miners must pay more resources, but the rewards they receive are not proportional. In addition, the demand for Bitcoin in the cryptocurrency market is not real? Many experts say that about 1,000 large cryptocurrency users control 40% of the market. In addition, the future of the cryptocurrency market is also full of uncertainty.

The uncertainty of Bitcoin itself causes its price to fluctuate. In addition, the prices given by Bitcoin exchanges around the world are different, and there may be a large price difference.

Analysts noted:

In such a world, investors will be torn between the two sides - will Bitcoin's pricing be widely accepted, will the price of the currency soar, or will there be a risk that Bitcoin's actual value is zero?

Bitcoin and Ejiao

Analysts have compared the demand for Bitcoin to donkey-hide gelatin, a traditional Chinese medicine extracted from donkey skin that has anti-aging and blood-tonifying effects.

Researchers pointed out that in 2016, China extracted 5,000 tons of donkey hide gelatin from 2.5 million donkeys. As a result, the number of donkeys has dropped sharply, which has led many people to use cow and horse hides to fake it. The increase in demand has caused the price of donkey hide gelatin to increase 18 times compared with the past decade.

Limited quantity = scarcity

Bernstein calls the total limit "credible scarcity," which is similar to Bitcoin. The only advantage of Ejiao is that its demand is predictable.

Fetien brand (I tried my best but couldn’t guess what brand it is) is very popular. This high-end Chinese liquor ranks between Bitcoin and donkey hide gelatin in terms of demand. Drinking this liquor represents a high social status, just like Veblen goods ^[1] .

This Veblen demand was one of the factors that drove Fetien’s price up 400% between 2007 and 2012, and has contributed to a 64% increase in prices over the past year.

Veblenian Demand

The "law" of supply and demand states that if the price of a good falls, consumers will buy it more often. However, for Veblen goods, the higher the price, the more attractive it becomes. Hence, we see people willing to pay extremely high prices for luxury goods. Bernstein calls the value of such products "虚荣价值."

Analysts say Bitcoin exhibits similar characteristics to Veblen goods. As the price of the currency rises, people who hold Bitcoin will think highly of themselves, feel cool, and even feel that they are unique. Holding Bitcoin, a digital gold, represents a person's social status.

In mid-2017, we conducted a consumer survey and interviewed 1,070 Chinese consumers of premium products. The results of the survey proved that Veblen demand is one of the important factors driving people to choose premium brands such as Fetien (emmm… could it be Moutai?) and its competitor Wuliangye. 32% of the respondents pointed out that 'providing such products is a respect for customers', which is also a key factor they consider when choosing a brand. 'People like me should drink this brand of wine'-23% of the respondents chose this reason.

Finally, whether it is Bitcoin, Fetien or Ejiao, their value comes from limited supply. The first half of 2018 will be a very important and interesting time. What role will cryptocurrency enthusiasts play in the Bitcoin market?

As Bitcoin becomes more and more popular around the world, many governments and regulators are beginning to pay close attention to it. Recently, South Korea and Australia have both increased their supervision of cryptocurrency traders. However, the impact of government regulation on speculative demand for Bitcoin is still unknown.

Notes (↵ returns to text)

1. Veblen Goods, also known as conspicuous goods, are a term used in economics to describe a commodity whose characteristic is that the demand for the commodity is positively correlated with the price of the commodity, rather than the inverse relationship of the normal law of demand. This kind of commodity can satisfy human vanity and is a display of wealth and status. ↵