The other way around: If you can't buy most stuff with it (the case right now) and can't convert it into your everyday currency (maybe happens if the exchanges suddenly go down for some reason, even only temporarily), what's the value of Bitcoin?
Selling it to someone else for more than you paid next week.
Meanwhile, keeping with that analogy, actually selling gold takes quite a long time when you hold the physical asset yourself, and the fees are not small there either, as validation needs to be performed to confirm the gold you're supplying is authentic.
Truly, I hate the analogy, because digital assets like this are supposed to be better, not just as bad, as their physical counterparts.
What if a law is passed that allows BTC currency conversion only to a small amount per day, because of whatever reason?
Currencies like the USD don’t have this property. There is no need to exchange your money to make it valuable.
That's not sustainable though when you have perfect replacements readily available.
It doesn't come from either of those things. It only has value because people believe it does, otherwise they would all try to get rid of it as quickly as possible.
Yes it does. You have to pay your taxes in U.S. dollars, so people have to use it. That's one of the purposes of taxes: so that the government-issued currency is used.
Of course, banks know this (it is the core of their business) and will therefore denominate loans in USD to avoid the risk of an unfavorable conversion during such a proceeding. Such an unfavorable conversion is exactly what the creditors in the MtGox bankruptcy are facing, because the proceeding involved converting their BTC accounts into JPY according to the exchange rate in 2014. Due to the change in BTC prices recently, that means that under the law the creditors will be fully repaid using what BTC assets MtGox still has, despite the fact that the creditors would receive a far greater payout if they received the amount of BTC that had been in their accounts at the time of the hack.
Beyond debts, there are also torts. Suppose I crash my car into your house and you sue me for the damage I caused. The courts will order me to pay in USD; so again, the courts are creating USD demand by creating an obligation to pay with USD.
So the demand for USD is only indirectly due to demand for goods and services; after all, there must be some reason why merchants are pricing their wares in USD. The direct driver of demand is the law itself, hence "fiat" currency.
That's exactly what I was saying: the goods and services are priced in USD because the legal structures require USD. I just used taxes as the most simple example.
But the whole point of the legal structures requiring USD is to get people to offer goods and services for sale in exchange for it. That way the government can purchase goods and services from the private sector to use as public goods, without having to first "get the money" from somewhere else.
If you want a challenge, try explaining why the Somali dollar still held its value despite being a fiat currency that lacked a government to back up its value for well over a decade.
Have you ever asked yourself why they believe that? It's because they can pay their taxes with it, but also, as it says right on the front, "this note is legal tender for all debts, public and private." As long as the US government is still a thing, this phrase means what it says. I haven't seen anything so far to convince me that BTC has more stability or longevity than the US or EU (or Britain...).
The dollar bill is worth 1 USD because the government asserts that.
That doesn't make 1 USD anything. It just means the dollar bill is worth 1 USD.
The government has no power to prop up the value of the USD if the world decides it's worthless.
I don't see "the world" deciding USD is worthless anytime soon: people in third world nations keep pristine US cash in their closets as a store of value; a lot of international trade uses dollars as a common currency; etc. If "the world" decides that dollars are worthless, that will be the least of my problems while I'm cowering in the bomb shelter I don't have.
Same for BTC.
The US government has plenty of military power that it can and does use for this exact reason.
Does this have something to do with aftermath of Vietnam War in 1970s? US got broke, to recover, they made a pact with Saudis, ditched gold and use USD instead for reference currency, and oil transactions are in USD (i.e. 'petrodollars')
Then things went downhill globally.
Does being unsuitable as a currency mean it's also unsuitable as a 'store of value'? The answer to that isn't obvious to me.
The value of the US dollar comes in part from our ability to pay taxes with it (and perhaps ultimately from the US military). Cryptocurrency has no central authority to enforce its value via taxes or military, and isn't particularly suitable for day-to-day transactions. Without either of those properties, I have a hard to imagining it being a particularly good store of value. But we'll see. I think we're all watching an interesting experiment unfold in real time.
I don't think the current price of btc has anything to do with whatever utility it may or may not have as a currency or store of value. The price is entirely informed by speculators hoping to sell it the following day for 100% ROI. I think a collapse is inevitable.