Bitcoin vs. Dogecoin: Which has the better monetary policy?
Before we go into our analysis, if you’re interested in the Halal or Haram questions for Bitcoin and Dogecoin check out:
Bitcoin’s Monetary Policy
A big part of Bitcoin’s claim to fame is its monetary policy.
Perhaps the most salient point of this policy is that there will only ever be 21 million Bitcoins.
This is a welcome relief from traditional currency where issuing banks purposefully devalue the currency by printing more of it with motives that often have nothing to do with the currency holder’s well-being.
With Bitcoin humanity gained a store of purchasing power that is designed to be incorruptible.
Surely having a finite supply is the best monetary policy money can have, right?
The problem with Bitcoin’s finite supply
A finite supply is a great way to store value.
However, money is more than just a store of value; it has to have three things going for it:
- A medium of exchange.
- A store of value.
- A unit of account.
For money to work as a medium of exchange it can’t have a limited supply.
This is because a limited supply makes price appreciation (deflation) inevitable with increased usage.
Naturally, people resist parting with things that are expected to go up in price and therefore deflationary money ends up resisting exchange.
The ideal currency is one where the purchasing power is expected to remain stable. That is, neither inflation nor deflation is expected.
For this to happen you need a currency with a supply that increases commensurate with the increase in goods and services the currency will be used to exchange.
Therefore, while a fixed monetary supply may be desirable, a fixed supply is not.
Dogecoin’s monetary policy:
Dogecoin, which inherited much of Bitcoin’s code (technically called a fork), by mid-2015 had a supply of 100 billion tokens with an additional 5 billion tokens to be put into circulation every year thereafter.
So although there is no fixed supply limit, the fixed number of new tokens issued every year means the inflation rate should decrease every year but remain above zero.
The table below shows Dogecoin’s inflation rate through 2030:
|Supply of Dogecoins (billions)||Number of new coins issued over next 12 months (billions)||Number of new coins issued over next 12 months (billions)|
Which monetary policy is better?
For the purposes of serving as a medium of exchange, I find Dogecoin’s monetary policy to be superior to Bitcoin’s.
This is because as a buyer, I know more Dogecoins are going to be printed so I am more willing to part with mine in a transaction.
As a seller, I know the number of additional Dogecoins introduced every 12 months is fixed, which means inflation is predictable and falling, so I am comfortable accepting payment in Doge.
Disclosure 1: Need I say this? Dogecoin and Bitcoin are speculative investments containing risk. This is not financial advice. Invest at your own risk. Never invest money you can’t afford to lose.
Disclosure 2: Author holds long positions in both Bitcoin and Dogecoin
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