How does Gresham's Law ('bad money drives out good') manifest in the world of Bitcoin? What does the tendency for people to spend depreciating fiat currency while hoarding appreciating Bitcoin imply for its function as a daily means of payment?

The Manifestation of Gresham's Law in the Bitcoin World

Gresham's Law, which states that "bad money drives out good money," describes how people tend to hoard currencies perceived as stable or appreciating in value ("good money") while prioritizing the use of depreciating currencies ("bad money") for transactions when both circulate simultaneously. In the Bitcoin ecosystem, this principle manifests as follows:

Bitcoin as Hoarded "Good Money": Due to its scarcity (capped supply of 21 million coins) and decentralized nature, Bitcoin is often regarded as an inflation-resistant "digital gold." When its price appreciates over the long term (e.g., historically high annualized returns), users are more inclined to treat it as an investment or store of value rather than a medium of exchange. This leads to deliberate hoarding of Bitcoin in anticipation of future gains.
Fiat as Spent "Bad Money": Fiat currencies (e.g., USD, EUR) often depreciate due to government over-issuance or inflation (e.g., annual inflation exceeding 2%). In economies where Bitcoin and fiat coexist, people prefer spending depreciating fiat for daily expenses to avoid "wasting" appreciating Bitcoin. For instance, users might pay for routine costs (e.g., shopping, bills) with fiat while holding Bitcoin in wallets long-term.

This behavior is driven by rational economic decision-making: Users optimize wealth by minimizing opportunity costs. Spending depreciating fiat avoids holding losses, while hoarding appreciating Bitcoin captures potential gains.

Impact on Bitcoin’s Utility for Daily Payments

The tendency to spend fiat and hoard Bitcoin directly undermines Bitcoin’s practicality as a daily payment tool, with specific consequences:

Reduced Payment Liquidity: Bitcoin’s transaction frequency declines as users avoid using it for small or frequent payments. This may stagnate Bitcoin adoption in retail scenarios, such as reduced merchant acceptance due to insufficient transaction volume.
Shift in Functional Role: Bitcoin transitions from "currency" to "store-of-value asset." Its payment utility is marginalized, while its storage and speculative functions are amplified. For example, users are more likely to hold Bitcoin for long-term investment (e.g., years) rather than spend it like cash.
Constrained Network Effects: Weakened payment functionality may hinder Bitcoin’s ecosystem growth. Low liquidity reduces developer incentives to build payment infrastructure (e.g., Lightning Network), further degrading transaction efficiency and user experience (e.g., high fees or slow speeds become more pronounced).
Potential Vicious Cycle: If Bitcoin is primarily viewed as an investment rather than a payment tool, its price volatility may intensify (due to supply-demand imbalances), reinforcing hoarding behavior. This makes daily payments even less practical, creating a self-perpetuating cycle of "payment function degradation."

In summary, Gresham’s Law highlights Bitcoin’s strength as a store of value in the digital age but at the expense of its everyday payment utility. Long-term, this may limit Bitcoin’s potential to become a widely circulated currency unless mitigated through technological improvements (e.g., Layer-2 scaling) or economic incentives (e.g., spending rewards) to balance hoarding tendencies.