Is Bitcoin Defying a Principle of Microeconomics?
In 2015, Bitcoin performed exceptionally well both as a currency and as a commodity. Interestingly, the cryptocurrency Bitcoin, which is also classified as a commodity, has even defied the well-held microeconomics principle that preaches that: “Commodities typically follow an inverse relationship with the value of the dollar. When the dollar strengthens against other major currencies, the prices of commodities typically drop. When the value of the dollar weakens against other major currencies, the prices of commodities generally move higher,” says Commodities Expert Chuck Kowalski. But, surprisingly, at the end of 2015, Bitcoin’s value increased and was heralded as the world’s best-performing currency.
In 2015, the price of Bitcoin increased about 37 percent against the U.S. dollar. Simultaneously, “The value of the US dollar rose throughout 2015 posting gains in the 10 percent to 12 percent range against currency indexes,” according to Dr. John M. Mason.
These two facts seem to indicate a direct relationship between Bitcoin, which is classified as a commodity, and the U.S. dollar. This direct relationship is surprising because it indicates a possible departure from the microeconomic principle that calls for an inverse relationship between the strength of U.S. dollar and the value of commodities.
But is Bitcoin a commodity? Authorities think so. Granted, Bitcoin is not a typical commodity, but it was nonetheless officially classified as a commodity by the U.S. Commodity Futures Trading Commission (CFTC) in September 2015. Earlier, in March 2014, the Internal Revenue Service (IRS) had ruled that Bitcoin should be considered as property for federal tax purposes.