How Bitcoin Relates to Finance

by James · October 18, 2022

Do you know how Bitcoin relates to finance? This article explains several ways Bitcoin relates to economics.

The relationship between Bitcoin and finance is not very clear to everyone. For some people, there is no such relationship. For others, there is some relationship, but not very clear. But for others, there is a clear connection between the two. Regardless of your perspective, this article articulates how Bitcoin relates to economics.

Bitcoin is a cryptocurrency. You can use it to pay for value in the form of a service or goods. You can also use Bitcoin as a store of value by keeping it. Bitcoin has value in that you can decide to sell it. You can also invest in Bitcoin trading as an investment vehicle. Go to bitcoin code if you are interested in trading Bitcoin. With that background, here’s how Bitcoin relates to finance.

Table of Contents

What is economics?

Economics has several definitions. You have probably heard of terms such as economic activity, economic growth, economic performance and economic impact. Therefore, you can approach finances from different angles. But for this article, economics refers to the study of how people produce, consume, and distribute resources.

We engage in economic activity daily, either individually or collectively. For example, you often plan your budget to ensure you have some money for your basic needs and savings. Businesses conduct economic activity by producing and distributing goods and services. Therefore, economics is broad, which is the perspective we use when explaining how Bitcoin relates to economics.

Bitcoin as a means of payment

Bitcoin, a digital currency, allows people to use it instead of conventional fiat money. Many businesses accept Bitcoin payments. While not all companies will accept Bitcoin payments, the number that do is growing. For example, you can go to a restaurant and use Bitcoin to pay for your meal.

The first way it relates to finance is that you can use Bitcoin to pay for goods or services. Part of economics is about paying for resources that we need or use. For example, if you go to a restaurant and eat a meal, economic activity occurs when you use Bitcoin to pay for the meal, which is a resource.

Bitcoin as a store of value

Bitcoin also relates to economics by being a store of value. Although some skeptics may challenge the view that Bitcoin has value, the reality is that many people and organizations buy and store Bitcoin. There are stories of organizations buying Bitcoin as leverage against fiat currency inflation.

If Bitcoin lacked value, no entity would want to buy and hold it. Today, the price of Bitcoin may be $25,000. The price may rise in a few weeks to $35,000 or even more. If you bought Bitcoin for $25,000, you would have gained more value within weeks. And you can decide to sell Bitcoin at a profit.

Bitcoin and economic impact

Finally, Bitcoin relates to economics through its economic impact. Many governments and financial institutions have taken notice of Bitcoin and the potential impact it could have on them. For example, governments are concerned that Bitcoin could render their national currencies irrelevant.

Financial institutions such as banks have also felt the impact of Bitcoin. For example, Bitcoin has disrupted centralized financial management and removed banks and other middlemen when trading. Also, many people who do not want to access financial services for various reasons can now do so through Bitcoin.

Last word

Bitcoin is still young and not yet fully understood. However, it is related to economics in more ways than one. As time goes on, this relationship will become clearer.