In 1896, Thorstein Veblen published “The Theory of the Leisure Class,” in which he introduced the concept of a “veblen good.” A veblen good is a product or service for which demand increases as the price increases.
The reason for this is that people see the high price as a sign of prestige and status. Bitcoin, the digital currency, has been called a veblen good because its price has been increasing even as its utility has been decreasing.
Bitcoin was created in 2009 by an anonymous person or group of people known as Satoshi Nakamoto. It was designed to be a decentralized, peer-to-peer electronic cash system. However, Bitcoin has failed to live up to its promise as a payment system.
Its transaction fees are high, and it takes a long time for transactions to be confirmed. As a result, many businesses that once accepted Bitcoin have stopped doing so.
Despite its declining utility, the price of Bitcoin has continued to rise. In December 2017, it reached an all-time high of almost $20,000.
NOTE: WARNING: Investing in Bitcoin is a speculative venture and carries a high level of risk. It is important to research and understand the risks associated with investing in Bitcoin as it is not backed by any government or central bank, and its value is highly volatile. Additionally, Bitcoin may be considered a Veblen Good, meaning it has positive externalities that result in greater demand. In other words, its desirability increases with increases in its price, creating a potential for people to buy simply for the purpose of driving up its value. This can create a bubble that can quickly burst, leading to significant losses for investors.
Since then, it has fallen to around $4,000, but this is still much higher than its price of less than $1,000 at the end of 2016. The reason for Bitcoin’s high price is that it is seen as a store of value and an investment asset rather than a currency.
Investors are buying Bitcoin because they think that it will increase in value in the future. This creates a self-fulfilling prophecy, as the more people buy Bitcoin, the higher its price goes.
However, this also means that Bitcoin is a speculative asset rather than a currency or a store of value. Its price could go to zero tomorrow if people lose confidence in it.
So, is Bitcoin a veblen good? It depends on how you define it. If you consider anything that people buy because it is expensive to be a veblen good, then yes, Bitcoin is one.
However, if you only consider products or services that increase in utility as their price increases to be veblen goods, then no, Bitcoin is not one.
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