A Veblen good is a product that challenges conventional economic theory. Normally, when the price of something increases, demand tends to drop. But for Veblen goods, the opposite occurs — demand actually rises as prices go up, and drops when prices go down as it loses its exclusive nature. These are typically luxury items like high-end watches, exclusive cars, and designer clothing that people buy not just for their utility but for the status and exclusivity they confer. The more expensive these goods become, the more desirable they are, as they signal wealth and social standing.
Given bitcoin’s price volatility and its growing popularity, it raises the question: Could Bitcoin be considered a modern Veblen good? While bitcoin shares some characteristics with traditional luxury items — like scarcity and increasing demand during price surges — its appeal is rooted in much more than just social prestige. Let’s dive deeper into the concept to understand the dynamics at play.
Key Takeaways:
- Veblen goods defy traditional demand curves; as prices increase, demand goes up.
- Bitcoin’s demand surges during price rallies, but for most people, its utility is rooted in financial gain or sovereignty, not status.
- Unlike Veblen goods, where ownership is flaunted, bitcoin ownership is often kept private as publicly flaunting bitcoin ownership creates an unnecessary security risk.
- While there are parallels, Bitcoin’s core appeal is financial sovereignty, preservation of purchasing power, and monetary gain.
What Causes of the Veblen Effect
The Veblen effect occurs when people buy products because of their high prices, seeing them as markers of status and exclusivity. Luxury cars, rare jewelry, and designer handbags are purchased not merely for what they can do, but for the social signals they send. The higher the price, the more these goods act as symbols of success and wealth. For those who buy them, it’s often about displaying their financial firepower and standing out in a crowd.
This effect hinges on perceived scarcity and social positioning. A luxury watch doesn’t just tell time — it shows the world that you’re part of an elite group. The desire for exclusivity is what drives demand, making the product more desirable as it becomes more expensive and unattainable to others.
Veblen Effect vs. The Law of Demand
The law of demand typically governs how people purchase products: When prices rise, demand falls, and vice versa. For most goods, this is a natural balance — consumers buy less when things become too expensive. Veblen goods, however, break this rule. Their appeal actually increases with price, because the high cost itself is part of what makes them desirable.
When it comes to Bitcoin, price increases often spark heightened interest, but the motivations behind this demand are more complex. Bitcoin’s appeal isn’t based on luxury or social signaling for the majority of holders. While price rallies draw attention, most buyers are interested in its store-of-value properties, price appreciation, or its hedge against the current economic system — not primarily because owning bitcoin signals status (though this may be true for some).
In contrast to Veblen goods, where people want to be seen owning them, many bitcoin owners actively protect their privacy. Publicly announcing bitcoin ownership is a security risk, leading many to keep their stack private. This makes bitcoin fundamentally different from traditional Veblen goods, where conspicuous consumption is key to the product’s appeal.
What is the Price Point?
In traditional Veblen markets, there’s usually a threshold price point at which demand begins to rise. For example, luxury brands often introduce “entry-level” models that are expensive but accessible enough to lure new customers. As prices rise beyond this threshold, the exclusivity of the item increases, driving demand even higher among the wealthy.
For bitcoin, certain price points also trigger increased attention, but the dynamic is different. When bitcoin passes significant milestones — like $1,000, $10,000, or $100,000 — it garners broader interest. However, this interest isn’t rooted in a desire for exclusivity. Instead, these price points often act as signals of bitcoin’s growing acceptance and viability as a global monetary asset.
Bitcoin’s price points do matter, but not in the same way as a luxury car or designer handbag. While there’s a psychological element to seeing bitcoin break new highs, these threshold breakthroughs are more of an indicator of Bitcoin’s continued growth, and staying power, leading to increased levels of confidence.
Veblen Goods vs. Giffen Goods
While Veblen goods defy the law of demand by becoming more desirable as prices increase, Giffen goods behave differently. A Giffen good is a product for which demand increases as the price rises, but for reasons tied to necessity rather than prestige. Typically associated with lower-income consumers, Giffen goods are essential products — like bread or rice — that people buy more of even as prices rise because there are no readily available substitutes.
Bitcoin doesn’t fit the Giffen mold. People don’t buy bitcoin out of necessity in the way they would buy staple goods. Bitcoin is a choice, often driven by its promise of financial sovereignty and resistance to inflation — at least in the West. For now, bitcoin isn’t used for an immediate need to meet daily necessities.
Traditional Examples of Veblen Goods
To understand how Bitcoin might be compared to a Veblen good, it helps to look at traditional examples:
- Luxury cars: Brands like Ferrari, Lamborghini, and Rolls-Royce thrive on the perception that higher prices make them more exclusive and desirable.
- Designer handbags: Companies like Hermès and Louis Vuitton use limited production runs and high prices to create demand.
- Fine watches: Rolex, Audemars Piguet, and Patek Philippe watches are status symbols where higher prices make them more sought after.
- Art and collectibles: Unique pieces by famous artists or rare collectibles often see their value — and demand — soar as prices rise.
These goods are valued not just for their practical function but for their ability to signify wealth, status, and prestige. The more exclusive they are, the more desirable they can become.
Is Bitcoin a Veblen Good?
At first glance, bitcoin’s rising demand during price surges might resemble the behavior of a Veblen good. As its price climbs, media coverage attracts new buyers. However, the motivations behind owning bitcoin differ significantly from traditional Veblen goods. Most bitcoin holders are likely not motivated by status or prestige. Instead, speculation, privacy, and economic independence are more likely to be the driving forces.
That said, bitcoin is becoming a powerful brand in its own right, reinforced by the Lindy effect: The longer it survives, the more likely it is to continue existing. As adoption grows and it becomes more ingrained in culture, media, and economics, its brand strength increases, drawing attention from individuals who may not yet fully grasp its underlying value. For some, especially those newer to Bitcoin, it may indeed function as a status symbol, much like any other prestigious asset. These individuals may be drawn more to its rising price and cultural visibility than to its true potential.
Though bitcoin shares some traits with Veblen goods — such as attracting more attention during price surges — it operates in a different or perhaps a parallel space. Traditional Veblen goods are sought for exclusivity and social signaling, but bitcoin’s core appeal lies in its financial utility, security, and state-resistant nature.
