Ask CryptoVantage: Why Does Anyone Want to Spend Bitcoin? (When You Can HODL Instead)

The Different Types of Bitcoin Spenders

People involved in bitcoin can be placed in a few different categories based on their tendencies to HODL, spend, or speculatively invest in bitcoin. Generally, people in each of these categories have a different level of knowledge or interest in the technology behind bitcoin. They also tend to have different intentions or reasons for being interested in bitcoin in the first place. Below we describe three different types of bitcoin spenders:

The Die-Hard Bitcoin Believer

Some people have so much faith in bitcoin that they keep most of their net worth stored in the digital asset. When they need to buy something or pay a bill, they must spend their bitcoin to do so because that is their only source of funds. Additionally, some people earn their pay in bitcoin, so if they want to buy something they need to spend bitcoin to do so. This category of bitcoin spender typically has a good understanding of the technology and believes that the sooner bitcoin is widely adopted the better.

The (Less Die-Hard) Bitcoin Champions

There’s another category of bitcoin spenders who believe in bitcoin, but have not yet made the leap to storing the majority of their net worth in the currency and/or earning their pay in bitcoin. These people typically support the bitcoin economy by storing some of their net worth in the currency, and by spending their bitcoin occasionally. There are small bitcoin businesses who accept bitcoin as payment and people in this category often intentionally shop at those businesses to slowly help build out a circular economy (this is expanded on below). This category of bitcoin spender typically has a good understanding of the technology, but understands that there are technical hurdles that must be overcome before bitcoin can be adopted widely.

The Speculative Bitcoin Investor

Plenty of people only buy bitcoin with the intention of selling it at a higher price later. When bitcoin goes through a price rally (i.e., the price goes up quickly), these types of investors are looking to cash out some of their profits. One way of doing that is by spending their bitcoin. This category of bitcoin spender is typically less interested or supportive of bitcoin as a whole, and is more so looking to make money off of the digital asset.

A Circular Bitcoin Economy

Bitcoin is designed to be a fully digital currency. It is a distinct monetary network capable of functioning completely outside the traditional banking system. One of the main design features of bitcoin is that you can use it without trusting others. This means payments should not be able to be censored, but whenever interacting with the traditional banking system, trust and censorship are inherent. For bitcoin to reach its full potential, it needs to be used fully outside of the traditional banking system.

For this to happen, there needs to be more than just buying and holding (or HODLing). There should be a large closed-loop circular economy running on bitcoin. People who understand this, and believe in the technology, are more supportive and willing to spend their bitcoin to support related businesses.

This means that people should be able to take part in the bitcoin economy without ever needing access to the traditional banking system. People need to be able to earn bitcoin, spend bitcoin, and save in bitcoin. Some people spend bitcoin to help make a circular economy in bitcoin a reality. Some examples of how you can help support a circular economy are:

• Consider asking your employer to pay part of your salary in bitcoin
• If you have employees, offer to pay part of their salary in bitcoin
• Once you are comfortable using bitcoin, consider spending some on small bitcoin businesses (but first see the warning below!)
• Set up automatic recurring bitcoin buys, for example $10 per week, with the intention of spending that amount on businesses that accept bitcoin

Warning

It is recommended that people who are new to bitcoin simply buy and hold bitcoin.

The newcomer’s goal should be accumulating more bitcoin as they become more comfortable using it, rather than selling or spending it. There are many reasons for this. For example, in most countries, spending bitcoin is considered a taxable event.

Newcomers are also more likely to fall into the trap of trying to time the market or picking the “next bitcoin”. The cryptocurrency space is also full of scams (learn how to avoid them here). The safest and easiest thing to do is buy and hold bitcoin for the long-term. Once you become more familiar with bitcoin however, spending some on small bitcoin businesses can be a great way to support the circular bitcoin economy.