Bitcoin as a Veblen Good: Why Higher Prices Drive Higher Demand
In traditional economics, when the price of a good increases, demand usually falls. But Bitcoin doesn’t always follow this logic. In fact, it often behaves like a Veblen good—a product for which demand increases as price rises, not despite the cost, but because of it.
What Is a Veblen Good?
A Veblen good is named after economist Thorstein Veblen, who introduced the concept of “conspicuous consumption.” These are items people buy not just for utility, but to signal wealth, status, or exclusivity. Think luxury watches, designer bags, or rare art. The higher the price, the more desirable they become.
Bitcoin fits this profile in a few key ways:
1. Scarcity: There will only ever be 21 million bitcoins. This digital scarcity creates a perception of exclusivity, especially as adoption grows and supply remains fixed.
2. Social Status: Owning Bitcoin is often seen as a statement of being financially savvy, forward-thinking, or part of a tech-elite movement.
3. Price as a Signal: For many retail investors, a rising Bitcoin price is interpreted not as a warning of overvaluation, but as confirmation that they should buy in before it “goes even higher.”
The Fiat Valuation Effect
When Bitcoin behaves like a Veblen good, its valuation in fiat currencies (USD, EUR, etc.) becomes partially reflexive—it’s influenced by perceptions and narratives, not just fundamentals. This has a few major consequences:
1. Positive Feedback Loops: As the price rises, media coverage spikes, FOMO kicks in, and more people buy—not less. This pushes the price even higher.
2. Weakened Fiat Benchmarking: Bitcoin isn’t just being valued in fiat—it’s increasingly being used to value fiat itself. As confidence in central banks and fiat currencies erodes (due to inflation, debt, or policy missteps), Bitcoin’s rising price is interpreted by some as proof of its superiority.
3. Volatility with a Purpose: While Bitcoin’s price swings are often cited as a flaw, they may actually reinforce its Veblen character. Surging prices make it more desirable. Crashes weed out weak hands and reset for another status-driven cycle.
Conclusion
Bitcoin doesn’t fit neatly into old economic models. It isn’t just a store of value or a means of exchange—it’s also a symbol. Its Veblen nature means that traditional valuation models break down, especially when measured in depreciating fiat currencies. As adoption increases, Bitcoin's price may not just reflect its utility, but also its mythos—and in that mythos, price itself becomes part of the product. #BTC #Bitcoin 
