The FT's Izabella Kaminska Explores the Numéraire and Why It Matters

Numéraire is one of those wonderful words adopted by the English language that, if you google it, will return half the results in French:

Définition académique pour le terme « numéraire » (parue en 1986).
Signification du terme « numéraire », parution de 1932, dictionnaire académique Français.
Ancienne signification développée en 1835 par l’académie Française (ACAD - 1835).
Ancienne signification éditée en 1798 pour le terme « numéraire » par l’Académie Française.

—La-definition.fr

We and Ms Kaminska have been posting on the importance of the concept from time to time for a while now, here's her latest:
Oops, first the definition in English:

An item or commodity acting as a measure of value or as a standard for currency exchange.

—Compact OED 

Now, here's FT Alphaville: 

Bitcoin’s fractioning problem

Here’s a thought experiment.

If I purchase 0.000,000,001 of a bitcoin from Kadhim for $100, should the value of one bitcoin should now be considered to be $100bn per bitcoin?

If not why not?

Ah, you say. Because the vast majority of buyers would not be prepared to buy for that absurd valuation.

But here’s the thing.

Are the vast majority of “buyers” really prepared to buy for the current valuation? Or are they simply thinking in dollars worth rather than in bitcoin’s worth?

The difference is important.

A valuation should represent the value at which the majority of Hodlers could sell their bitcoin if they decided to sell their holdings all in one go. If this is impossible, the price per bitcoin isn’t really real. It’s just an illusion. The challenges that Hodlers face in cashing out their mega bucks speak volumes as a result. It’s not really real money or realisable wealth if you have to wait weeks or months for liquidation to occur — especially given the volatility of bitcoin.

In that vein, here’s another thought experiment.

If the asset you’re buying is so removed from physical reality, so abstract, does new money flowing in really care what fraction of it it is buying? If not, what’s the constraint on valuation?

In any other commodity market a physically bounded objective usually dominates:...MUCH MORE 

I think Kadhim is in some sort of trouble. Why is Izabella being so nice to him? Why is she valuing his bitcoin at $100 billion? Something's up.

Here's one of our numéraire posts, from April 2013:

"Bitcoin Is No Longer a Currency" 
It never was a currency. It was always quoted as "dollars per Bitcoin" not Bitcoins per dollar".
Swiping a line from the Wikipedia entry for "Numéraire":

...If a store sells 1 can of soup for $1.20, the numéraire is dollars. If the store would buy $1 for 5/6 of a can of soup, the numéraire is cans of soup. Trading a can of soup is simpler than trading fractional cans of soup, so most stores use a numéraire of money, which has fractional units....

The numéraire was the whole point of my comment on the FT Alphaville article "Debunking goldbugs":

Are you quoting rocks per dollar or dollars per rock?

As long as gold is quoted as dollars-per-ounce it is the dollars that are money, not the gold.
Or the Bitcoins....