"Bitcoin will never become a means of payment!"

At an event at the NYU School of Law in Manhattan on Wednesday, Gary Gensler, Chairman of the US Securities and Exchange Commission (SEC), expressed his skepticism towards Bitcoin and other cryptocurrencies as a future means of payment. Among other things, he referred to Gresham's Law to underpin his assessment that it is unlikely that Bitcoin and co. will ever find widespread acceptance as a currency. But what exactly does this law mean, and how does it fit in with Gensler's argument? In fact, a closer analysis shows that Gresham's Law may have been misunderstood in this context - and that Bitcoin does have the potential to exist as "good money" in the long term.

Gresham's law, named after the English merchant Sir Thomas Gresham, describes (somewhat casually) the phenomenon that "bad money drives out good money" when two means of payment with different values exist in parallel in a market. The reason for this is that people tend to spend the weaker, i.e. inflation-prone, money more quickly, while they prefer to hoard the more stable money. A classic example of this is the parallel use of gold and silver in the 19th century. While gold acted as a store of value due to its scarcity, silver was used more frequently in everyday life as it was more practical for smaller payments.

Gensler's reference to Gresham's Law implies that Bitcoin and other cryptocurrencies do not have the characteristics to survive in such a competitive environment in the long term. He argues that people see Bitcoin as a speculative asset rather than a means of payment due to its high volatility. In his view, the US dollar, backed by the US government, would retain its function as a means of payment, while Bitcoin would at best be hoarded as a store of value, but would not circulate widely.

Although Gary Gensler has made a clear distinction between Bitcoin (commodity) and other cryptocurrencies (securities) in the past, he suddenly equates the largest cryptocurrency with all others in this aspect.

[A nation] want[s] one currency unit because it's a store of value, a medium of exchange, a unit of account. It all has tremendous economics of networks. So it's unlikely this stuff is going to be a currency. It's going to have to show its value through disclosure, through use. ... The same way you pick amongst the thousands of securities that are listed on the stock exchange.
_{Gary Gensler at the NYU School of Law-event}

However, Bitcoin has key differences from other cryptocurrencies, such as the issuance of the tokens, the limited supply, the security of the network, the concept and the intentions of the personalities behind the tokens.

In fact, Gresham's Law could be more likely to support the success of Bitcoin as hard money in the long term if it is viewed from a different angle. In a free market, the "hardest" money could prevail - and this is where Bitcoin's limited supply plays a crucial role. Compared to state currencies (or in some cases other cryptocurrencies), which can theoretically be multiplied indefinitely, Bitcoin has a maximum cap of around 21 million units. This scarcity is a fundamental feature that makes Bitcoin a coveted store of value. It seems logical that people would tend to store a currency that cannot be multiplied at will rather than spend it quickly. Thus, Bitcoin could act as a preferred store of value in the long term, similar to gold in the past.

In contrast to Gresham's law is "Thier's law", which states that in a free market, the stronger money tends to displace the weaker. If a currency loses too much value, at some point traders will no longer accept it and the stronger currency will prevail. A current example of this is emerging and developing countries, where many traders would prefer to be paid in more stable currencies such as the euro or dollar rather than in the domestic, highly inflationary currency.

Gensler's argument could therefore be refuted by Thier's law. Because if Bitcoin really does have the more stable properties in the long term, it could displace the weaker, inflationary fiat money in the long run. This is particularly true if the loss of trust in state currencies continues to increase and people look for alternative means of storing value.

The discussion about the future of Bitcoin and co. largely revolves around the question of which money will prevail as a means of payment in a free market in the long term: the "good" or the "bad" money. Gensler's argument only works from the perspective of a fiat standard and if factors such as "value stability" are only considered in the short term. In the long term, fiat currencies are anything but stable in value.

His view is therefore not unchallenged. While Gresham's law describes that in certain historical contexts "bad" money can dominate as a means of payment, Thier's law shows, as mentioned, that in free markets in which traders and consumers are free to decide, the "good" money with a more stable value tends to displace the weaker one. In times of crisis or in economies with unstable currencies, it can therefore make sense to rely on alternatives such as the US dollar or, increasingly, Bitcoin as a store of value.

Bitcoin, which is characterized by its scarcity and limited total supply of 21 million units, is now regarded by many people as "hard" money. In an environment where government currencies are continuously losing value due to expansionary monetary policy, it seems logical for many to focus on a scarce commodity. This perspective emphasizes that hoarding Bitcoin is not just a speculative decision, but also a long-term strategy to hedge against the inflation of traditional fiat currencies.

Ultimately, the answer to the question of whether Bitcoin will prevail as a means of payment, store of value or money in general depends on the perspective from which the debate is viewed. From a regulatory perspective, as represented by Gary Gensler, the focus is on minimizing risks for investors and ensuring the stability of the financial system. He sees Bitcoin primarily as a volatile asset that cannot take on the traditional functions of money. From the point of view of many supporters, however, he is wrong.

The reality is probably more complex than one theory or another would suggest. It is quite possible that different forms of money will continue to coexist in the future: state currencies for daily payment transactions, Bitcoin as "hard" money for the long-term storage of value or even as an international unit of account. However, whether Bitcoin can actually take on the role of a universal currency depends on many factors and "Gresham's Law" alone will not be enough to argue against BTC becoming money.