Lunar Fallacy

There is a theory that hoarding bitcoin guarantees to perpetual profit. The theory is based on the following economic laws.

• One money is better than two (Metcalfe’s Law).
• Better money displaces other monies (Thiers’ Law).
• At fixed supply, price rises with demand (Law of Supply and Demand).
• Potential increase in demand is unbounded (trade is positive sum).

Hoarding is purely speculative, with all returns constituting profit or loss. The money is not lent to another for interest and so is always available for exchange, a benefit that offsets interest forgone.

A corollary to the theory is that no investment in production is required to profit from it. Capital is required for all production. Lenders (investors) earn interest in exchange for time without their capital. Production is the source of trade and therefore all economic activity results from investment. A hoard is defined by its lack of consumption in production. If all people hoarded their capital, there would be nothing to trade and therefore no demand for the money. It seems that the theory is irrational, supporting the idea that Bitcoin is indeed Magic Internet Money. When a theory results in a contradiction, the theory is flawed. A fixed supply market money can only increase in purchasing power due to:

1. economic growth – creating more demand for use of the money in exchange
2. monetization – people transferring demand from another money

Yet economic growth is strictly the result of investment. Growth is necessarily less than the return on investment (interest), and full hoarding is no investment at all. And of course monetization has a limit. Finally, the theory fails to recognize the stability property of Bitcoin. For these reasons the theory is invalid.