Is Bitcoin the perfect ‘Veblen Good’?

Aakash Athawasya
5 min readFeb 6, 2020
Source: Pxhere

Scarcity is the mother of all invention; economists often cite this as a case for natural demand. Great societies have assembled themselves where organically occurring resources sprout. Marketplaces created to allow the trade of goods based on their availability in the empire.

With the case of simplistic goods and services, the norm of economics, the fabled laws of demand and supply seemed to hold on most occasions. But modern society has evolved to show anomalies.

The laws of demand have seen exceptions. Most commonly seen in the case of Veblen goods.

A particular class of goods whose very nature flies in the face of the law of demand or “conspicuous demand” as coined by 19th-century economist, Thorstein Veblen. It denotes those goods whose demand moves in the opposite direction of traditional goods.

Veblen goods see their demand go up, as prices increases.

Not your regular grain of salt or loaf of bread, these goods come from the rare group of limited and unique assets. Most commonly associated with antique art and rare metals, of an ‘exhaustive essence,’ Veblen goods see their value in the fundamental law of economics, scarcity. And boy does that drive demand.

One might argue that with time, the case for Veblen goods becomes static, or at least, dissipates. Scare goods may find alternates, or become limited-in-use forcing their fandom to fade.

I’m not implying that Da Vinci’s art found an alternate in the banana tapped to the wall, nor am I saying that a 24 carat diamond on a finger serves no use, but it does pose an interesting question.

Can Veblen goods survive, the pressure of technology and time? If yes, which Veblen goods will?

While I cannot adequately chart the future of art or the lust for diamonds, I can put my [diamond-less] finger on an asset that not only has use, in and of itself, in terms of the defining characteristics of money, but also as a investment, plying its trade on some of the most important exchanges in the world. Not only that, this asset probably has one of the best arguments for a Veblen good, not in the current moment.

Yes, a Veblen good in future, cryptocurrency now, Bitcoin.

From the outside looking in, Bitcoin might sound like the exact opposite of the Mona Lisa, more suited to ‘magic internet money.’ The main currency of criminals on the Dark Web cannot really, to most, be seen in the same light like pieces of art or industrial jewelry, but a peek at its underlying features builds a strong case.

Bitcoin has, what people in the financial world call a ‘hard cap,’ in simple terms, it is exhaustible, like gold.

According to its whitepaper, penned by the pseudonym Satoshi Nakamoto, the maximum number of Bitcoin that can ever be mined [read: created] is 21 million. This system works on a periodic basis, where every four years there is a drastic and systematic change in supply, called the ‘halving.’

The method of creating Bitcoin is through mining or generating a block on the Bitcoin blockchain. Miners will be rewarded in Bitcoin for every block mined. This is how Bitcoin is generated.

Every four years, the mining reward is reduced by 50 percent. In 2012, the first halving took place, reducing the block reward from 50 BTC per block to 25 BTC per block. Four years later, in 2016, the reward dropped to 12.5 BTC.

In May 2020, the third halving is set to take place, with the reward dropping to 6.25 BTC. As the incentives for miners decrease, the market balances itself to increase their notional amount [in dollar terms], causing a price spike. In 2012 and 2016, a price rise was seen prior to the halving.

As I write this, a case of market equilibrium is taking place as the price of Bitcoin is increasing, incentivizing miners to continue adding blocks to the Blockchain [more on this later]. The market is, therefore, balancing itself without the case for an mediator, like a central bank.

Does the reward eventually go to 0? Yes. When will that happen? Not anytime soon. Estimates put it at 2140. That’s when all 21 million Bitcoin will be mined.

What, you ask, will happen to the market? Well, it might play out like the case of most Veblen goods, but first, some important points to note.

Bitcoin is not just ‘magic internet money.’

The cryptocurrency, with a price of over, at the time of writing, $9,500 per coin, and derivative contracts on the Chicago Mercantile Exchange [CME] and the Intercontinental Exchange’s digital assets platform, has seen plenty of development, in technology and investment. Bitcoin ATMs have sprouted throughout Europe and North America, globally, legislators are softening their chokehold on regulation, and from Venezuela to Hong Kong, Bitcoin is being used as a ‘safe-haven asset’ and a hedge against the political order.

The case for accumulating Bitcoin, or ‘stacking SATS’ the tiniest unit of Bitcoin [one-one millionth of 1 BTC] is strengthening with every used-case. First, it was financial control, then came the speculative investment bubble, now it’s a safe haven against macroeconomic tensions, tomorrow it will be all this and more.

You never know with the fickle and ferocious would of digital currencies.

What we do know, since the birth of Bitcoin, is it is finite. As the supply of Bitcoin decreases and finally ceases, in 2140, coupled with enough actual used-cases, investments accumulated and hedges made, among others, its price-relationship with demand will mimic that of any Veblen Good.

Limited. Unique. And not just something to look at. But something to use. Some might say, this is taking happening.

We are in the midst of Bitcoin’s ascent to become the perfect Veblen good. To paraphrase Apple,

“If you don’t have an *insert Veblen good here*, well, you don’t have a *insert Veblen good here*”

A few good books I’ve read/am planning to read to understand Bitcoin better:



Aakash Athawasya

Writing as opposed to keeping the thoughts locked in my head.