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How Bitcoin Has Properties of Veblen Goods

Check out “Bitcoin is a Veblen Good” on YouTube.

Most products and services have an inverse relationship between price and demand. That is, when the price goes up, demand goes down.

With Veblen goods, however, there is a direct relationship between price and demand. When the price goes up, so does the demand for that product.

Pic5

This is because Veblen goods are luxury products designed to show exclusivity, wealth and social status.

When you meet two people and one of them drives a Ferrari 296 GTB and the other drives a Toyota Camry, most will assume that the person who drives the Ferrari is much wealthier. Individuals like to buy expensive cars, not only to show that they are wealthy, but also because few can afford them.

cool car and money

The Ferrari’s exclusivity drives its demand. And this exclusivity is driven by the high price. The high price signals to people that this is a product only for the rich and successful. So if the price of a vegetarian good suddenly falls, demand will also fall because it would lose its exclusive character.

Examples of Veblen merchandise include designer clothing (Gucci, Prada, and Armani), real estate (Martha’s Vineyard), and even attending universities like Stanford, Yale, and Georgetown. Their exclusivity drives their demand. If anyone could get into these schools, why should wealthy Hollywood parents be willing to pay millions in bribes to take their children in?

The big question now is how Bitcoin relates to Veblen goods. Well the short answer is that Bitcoin is a Veblen good.

Little demand for btc

In the early years of its inception, when the price of Bitcoin was low, demand was also low.

At the time, hardly anyone heard of Bitcoin and thought it was worthless, so no one was interested in buying it. But as the price of Bitcoin went up, people started to notice it and the demand increased. The more the price of Bitcoin goes up, the more valuable an asset becomes in the eyes of the market and the more people want it.

btc very much in demand

So this is Bitcoin and Veblen commodity, and now you know why Bitcoin is a Veblen commodity.

This is a guest post by Siby Suriyan. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.

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