Is Tim Swanson Right That Bitcoin Hoarding Is Bad?

Numbers blogger Tim Swanson recently used Bitcoin blockchain data graphs generated by John Ratcliff to declare that 70% of existing bitcoins have not been spent in six months.

He wrote that the data provides a “sobering chart” for those who want Bitcoin to grow. In his opinion, if all currency is not being spent like a hot potato—quickly hopping from one person to the next—this is a bad sign for a currency’s future value prospects.

For anyone familiar with economics, Swanson’s prescription is reminiscent of the claims of the famous but now largely discredited economist John Maynard Keynes. When Richard Nixon removed the US dollar from the last shreds of the gold standard in 1971, he said, “I am now a Keynesian in economics” (popularly misquoted as “We’re all Keynesians now”).

Since a popular name for Bitcoin is “gold 2.0,” it’s understandable that many proponents of Bitcoin would be against Keynesian economics. What were Keynes’ beliefs, exactly? Briefly, Keynes believed that wealth does not come from savings (capital), but rather from the simple act of spending. Specifically, government-prompted mass spending via inflationary fiat currency not pegged to scarce assets like gold. Keynes has since been discredited because the practice of his policies by the US Federal Reserve has caused a 98% decrease in the purchasing power of the US dollar since 1913. 

Satoshi Nakamoto is, in a word, the anti-Keynes. Satoshi recognized that money that is consistently devalued over time causes a huge problem. It incentivizes people to spend quickly before the money loses more value, rather than thoughtfully saving it for the future. And a lack of savings keeps people in economic doldrums, because they can’t afford to finance startups, invest in innovations or weather unforeseen disasters. In other words, the hot potato spending encouraged by government money keeps poor people poor.

For this reason, Swanson’s sullen proclamation that people holding the majority of Bitcoin as capital is a bad thing can largely be dismissed to Keynesian thinking. Even Ratcliff, the graph-maker himself, disapproves of Swanson’s prescription and says so in the first comment on Swanson’s blog:

“Isn’t it true that more than 70% of all gold or even USD reserves in the world did not move during the same time frame[?] I look at the amount of value being transmitted on the network and think it is remarkable. Bitcoin is both a currency and a store of value, so what is unusual about the store being that high? I find it remarkable how much of the market is liquid.”

Tim Swanson may be good with numbers, but that doesn’t mean he’s good with economics.

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