Is Bitcoin A Giffen Good?

bitcoin giffen good

Bitcoin is speeding towards crossing the $15,000 USD mark. What is it that continues to drive Bitcoin higher and higher despite all the skeptics declaring Bitcoin to be nothing more than a speculative bubble? Well, other than being comparable to the Tulipmania of 1630s Holland, there can be another comparison made. The other way to look at it is as a Giffen good.

It makes sense if you think about it. Everyone who is examining Bitcoin and the whole cryptocurrency phenomenon happens to come upon people who are die-hard fans of cryptocurrencies that have absolutely nothing bad to say about cryptocurrencies. Even with all the setbacks and problems, Bitcoin has seen a continuing growth in its value. Then at the other end of the spectrum come the people who are absolutely convinced that Bitcoin is a bubble. There is no real conclusive evidence to support either of the two because it is still in infancy. It could either be a revolutionary unified financial system for the world over or it could just be a modern rendition of the Tulipmania.

Giffen goods are the kind of goods that rise in demand when their price rises. This is different from most other goods whose price actually comes down as their demand increases. In the case of Bitcoin, it is quite clear that its rising price with increase in demand means it is in fact behaving like a Giffen good. As the prices rise further and further, more people will get attracted to Bitcoin. Even those who have questioned the validity of Bitcoin will see that it is worth a shot investing into it. There is something to consider, however. There is no reason to deny that a Giffen good cannot turn out to be a speculative bubble that shall burst.

Whether or not Bitcoin might become a successful global currency system, the blockchain network technology it has introduced into the world is definitely here to stay and will continue to have an impact on the world.

A Bitcoin ETF being created would certainly accelerate its rising price further. That is very likely. Many potential buyers feel that they are missing out on something big especially since the rise is increasingly more noticeable by the day. They would prefer to invest into the cryptocurrency game via a more traditional means like an ETF in their brokerage account. Until it actually happens, there will remain a great number of people who will not be joining the cryptocurrency world.

So if the prices keep rising like they are right now, more and more potential buyers will become attracted to this seemingly lucrative investment opportunity and possibly convert skeptics. Any trend of prices dropping, however, would be signs of the whole ‘bubble bursting’ theorization made by the stark critics of Bitcoins and cryptocurrencies.

Whether or not Bitcoin is indeed a Giffen good remains to be seen but this should provide an alternative point of view with which to see Bitcoin and cryptocurrencies in general.

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