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"The only use of money is to buy tools to work with or the product of tools. Therefore money is worth what it will help you to produce or buy and no more."

— Henry Ford

How much stuff will bitcoin buy?

Here is the canonical measure of hyperinflation in the Weimar Republic: In 1918, you could have bought 500 billion eggs for the same amount of German marks it cost to buy just one egg five years later.

This is amazing — and confusing.

It’s confusing because no one had billions of marks to spend on eggs in 1918 — nor were there 500 billion of them to buy.

The magnitude of German inflation is more easily understood with prices: The price of a single egg went from 0.64 "papiermark" (the devalued currency of Weimar Germany) in 1918 to 320 billion papiermark in 1923.

But the confusing example with quantities might be more instructive: It illustrates that eggs didn’t get more valuable during Germany’s hyperinflation so much as that money got less valuable.

That will sound like a distinction without a difference to anyone who’s kept their savings in a hyper-deflating currency like German papiermarks, Zimbabwean dollars, Argentine pesos or Lebanese lira.

But it's a distinction that anyone who keeps their savings in hard monies like bitcoin should be aware of.

Because if bitcoin really is a store of value, it might do exactly that to your purchasing power: store it.

That would probably disappoint a lot of people.

At the Digital Asset Summit last week, Michael Saylor told a packed main-stage crowd that "if bitcoin is nothing more than digital gold [it’s] worth at least $200 trillion." 

A $200 trillion market cap for bitcoin works out to $9.5 million per coin — 118x higher from today’s prices.

That sounds pretty good, of course (especially with the "at least" part that Mr. Saylor emphasizes) — and it’s hard not to imagine what you might do with that much money.

But we forget in our imaginings that the price of other things will go up, too.

So, Mr. Saylor’s $9.5 million price prediction may well come true, but that does not mean you'll be exchanging your one bitcoin for, say, a four-bedroom townhouse in the West Village any time soon.

Or ever.

If bitcoin really is digital gold, one bitcoin in the future may only buy you the same amount of stuff that one bitcoin buys you now — a used RV to park in your parent’s backyard, for example.

That, at least, is the lesson of history.

The purchasing power of gold hasn’t changed much over the past 2,000 years.

For example: In gold terms, first century Roman centurions earned almost exactly what their 21st century equivalents, US Army captains, do now.

In the time between centurions and captains, gold has miraculously stored value — but not multiplied it.

There’s been a lot of volatility along the way, of course, but maybe less than you might think. 

One study of prices in Weimar Germany found that gold bought just 40% more rye bread in 1923 than it did in 1914, despite years of hyperinflation.

Another estimate suggests that the overall purchasing power of gold in Germany increased 1.8x during the five years of hyperinflation.

That was certainly helpful to whoever had the foresight to swap marks for gold in 1918 — but I imagine bitcoiners would be disappointed if the dollar collapsed and they found that their bitcoin bought them less than twice of the stuff than it would buy them now. 

They’d probably do much better than that in a crisis, however. 

At the height of the Weimar hyperinflation, a block of commercial real estate in Berlin reportedly sold for just 25 ounces of gold (worth $500 at the time).

But you’d have to be quick to capitalize on those bargains because other anecdotal data suggests that when the German government stabilized its currency by replacing papiermarks with property-backed "rentenmarks" in November 1923, house prices immediately returned to roughly where they were in 1913 (in gold terms). 

Also, those bargains were only available in Germany.

A New Yorker holding gold in 1923 wasn’t much richer than they were in 1913 because even when gold’s local purchasing power skyrockets in a bout of hyperinflation, its global price generally remains stable. 

In periods of hyperinflation, then, it’s the collapse of asset prices that creates bargains for anyone with hard money to spend, not an increase in the value of that hard money. 

So, when Michael Saylor tells us our one bitcoin will soon be worth $9.5 million, it’s not much more informative than telling a German in 1913 that their one ounce of gold will soon be worth 100 trillion papiermark.

That doesn’t tell us what we’ll be able to do with the money, and the only use of money (to paraphrase Henry Ford) is what you can do with it.

Mr. Saylor also advised the crowd at DAS to "allow the passage of time to enrich you." 

But that’s a description of productive assets (like stocks) that are meant to multiply value, not an unproductive asset (like gold) that’s only meant to store it.

There’s a big difference.

$1 worth of gold bought in 25 AD would buy approximately $1 worth of stuff in 2025 AD.

By contrast, $1 invested in a productive asset that compounded its value by just 1.62% per year over that same time would now buy you $100 trillion worth of stuff.

Mr. Saylor may be correct that bitcoin will soon buy us a lot more dollars.

But that doesn’t necessarily mean it will buy us a lot more stuff.

— Byron Gilliam

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