Gresham's Law: "Bad Money (The US Dollar) Drives Out Good Money (Bitcoin)."
Gresham's Law states that "bad money drives out good," meaning that when both valuable and less valuable currencies circulate together, people tend to spend the less valuable currency while hoarding the more valuable one.
In the context of Bitcoin, this principle suggests that as a digital asset, Bitcoin is often held as a store of value rather than spent, while traditional fiat currencies, perceived as less valuable, are used for everyday transactions.
Application To Bitcoin
In the context of Bitcoin, it is often viewed as "good money" due to its limited supply and potential for appreciation.
People are likely to hold onto Bitcoin, considering it a store of value, while spending traditional fiat currencies, which are subject to inflation and devaluation.
Examples Of Gresham's Law With Bitcoin
Hoarding Behavior: Individuals may choose to keep their Bitcoin instead of spending it, as they believe it will increase in value over time.
Fiat Currency Usage: When making everyday purchases, people are more inclined to use fiat (i.e. US Dollar) currencies, which they view as losing value, while saving their Bitcoin for potential future gains.
Implications For Bitcoin VS Shitcoins
Gresham's Law also applies to Shitcoins. Shitcoins are often preferred for transactions, while Bitcoin is held for investment.
This behavior reflects the ongoing dynamics of perceived value in the digital currency landscape.
In summary, Gresham's Law illustrates how Bitcoin's role as a store of value influences its use in transactions, highlighting the tendency to spend less valuable currencies while retaining Bitcoin which is considered more valuable.