Money, even intrinsically worthless paper money, cuts the “double coincidence” problem in half. I just need to find someone willing to pay me some of that paper for my lecture, then use that paper to pay for dinner. As long as I trust that someone will accept the paper, I’m willing to accept it in exchange for my lecture. It’s trust that the “worthless” piece of paper is actually worth something to other people that makes it an acceptable medium of exchange.
As a result, the price of bitcoin fluctuates with news that vendors or firms accept or decline bitcoin as a mode of payment. Late last year, bitcoin prices jumped after Square, a payments firm, was reported to be testing bitcoin. Wider adoption and acceptance of cryptocurrencies as a payment option naturally increases what they are worth.
All those points are rather spot on, and usually are remiss from the defense arsenal of some of the even staunchest bitcoin advocates.
What was most interesting, however, was the Fed's observation under what conditions cryptos could not only match, but supplant fiat as the dominant currency. The answer: bitcoin would dominate payment methods in a dystopian world, in other words a "decentralized" world, in which there is no more faith - or trust - in central banks.
Which, of course, is the whole point behind cryptocurrencies in the first place: to replace the dollar, and other fiat currencies, once the entire fractional-reserve lending platform, and last 100 years of monetary philosophy are exposed to be a fraud.
"Lunacy" you say? Well, it's a conversation worth having after the next market crash, one which most likely will wipe out what little faith remains in central banks, in fractional reserve lending, in conventional economics and in fiat.
Incidentally, this is precisely what Deutsche Bank's chief credit strategist, Jim Reid, predicted would be the ultimate endgame: the extinction of fiat, and the return to hard, or alternative, currency.