Why Shares are not Money

After Christmas lunch I was discussing this article Eliminating risk in Home Loans - Banks need to start doing this, NOW. with a family friend. After having explained the thinking and answering some questions, my friend then asked the question, “But could the bank not do the same thing using Amazon shares?”

I have three things to say on that question:

1. Shares are NOT money. Shares are not a bearer instrument. What is a bearer instrument you ask? Great question. A bearer instrument is a type of financial instrument that can be transferred from one person to another without the need for a formal transfer process or the involvement of a centralized authority. The key characteristics of a bearer instrument are:

1. Ownership is determined by possession: The person who physically possesses the instrument is considered the owner.
   1. No registration or recording required: There is no need to register or record the ownership of the instrument in a centralized database or registry.
   1. Transferable by delivery: The instrument can be transferred from one person to another simply by delivering it to the new owner.
   1. No need for endorsement or signature: The instrument does not require endorsement or signature to transfer ownership.

In short, money is a bearer instrument. Real world examples include.

• Cash: Physical currency, such as banknotes and coins, is a bearer instrument.
• Bearer bonds: These are bonds that can be transferred by delivery, without the need for registration or endorsement.
• Bearer shares: Some companies issue bearer shares, which can be transferred by delivery, without the need for registration or endorsement. However, in most cases company shares are not bearer shares.
• Gold or other precious metals: Physical gold or other precious metals can be considered bearer instruments, as ownership is determined by possession.

This means that shares are NOT money.

Bitcoin IS money. Bitcoin is a bearer instrument. Bitcoin can be transferred from one party to another without the need of any centralized authority having to cancel ownership on the one side and reissue ownership to the next side, with all the timing delays and complexities that entails.

• Bitcoin is the best performing asset of the past decade. A Cointelegraph article describes bitcoin as the best performing asset of the last decade by 900%. Second place goes to the Nasdaq 100 Index at 20%. That’s an order of magnitude lower. So why would you want to choose anything else that’s subpar?

• Bitcoin is the most liquid good in existence today. It can be bought or sold at any time anywhere in the world, irrespective of time-of-day, public holidays, whether markets are opened or closed etc.

So in the example of the previously mentioned article, if a bank bought company shares (say Amazon shares) in place of Bitcoin, and the bank needed to sell the shares due to bad debt on a home loan, not only would it take days to complete BUT the bank would also have to find someone looking to buy Amazon shares, AND at the same quantity that the bank had to sell. That’s a very long sentence on purpose. This is the “double coincidence of needs” requirement that made barter such poor medium of exchange system.

Remember, that whole point of this exercise is to reduce risk for the bank, not increase risk and complexity. Using any other asset adds risk and complexity.

Bitcoin removes risk.

References

https://cointelegraph.com/news/btc-was-best-performing-asset-of-past-decade-by-900