How Bitcoin Has Characteristics of Veblen Products

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For most products and services, there is an inverse relationship between price and demand. In other words, when the price increases, the demand decreases.

However, for Veblen products there is a direct relationship between price and demand. When the price increases, the demand for that product also increases.

Indeed, Veblen products are luxury products intended to display exclusivity, wealth and social status.

If you meet two people and one of them drives a Ferrari 296 GTB and the other a Toyota Camry, most will assume that the person driving the Ferrari is much wealthier. Individuals like to buy expensive cars not only to show they are rich, but also because few people can afford them.

The exclusivity of the Ferrari is what motivates its request. And this exclusivity is motivated by its high price. The high price is a signal to people that this is a product only for the rich and the successful. So, if the price of a veblen good suddenly collapses, demand will also drop because it will lose its exclusivity.

Examples of Veblen products are branded clothing (Gucci, Prada and Armani), real estate (Martha’s Vineyard) and even attendance at universities like Stanford, Yale and Georgetown. Their exclusivity stimulates their demand. After all, if anyone could get into these schools, why would wealthy Hollywood parents be willing to pay millions in bribes to get their kids in?

So, now the big question is, how does bitcoin relate to Veblen products? Well, the short answer is that bitcoin is a Veblen asset.

During the first years of its inception, when the price of bitcoin was low, demand was also low.

Almost no one had heard of bitcoin at the time and thought it was worthless, so no one was interested in buying it. But as the price of bitcoin increased, people started to notice it and its demand increased. The higher the price of bitcoin, the more valuable it becomes in the eyes of the market and the more people want it.

So that’s bitcoin and Veblen goods, and now you know why bitcoin is Veblen good.

This is a guest article by Siby Suriyan. The opinions expressed are entirely theirs and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.

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