⛔ Educational Use Only — Not Financial Advice
This page is for educational and entertainment purposes only. It is not financial advice, tax advice, or legal advice. Do your own research. Verify everything independently. Consult a licensed financial professional before making any financial decisions.
The Principle
What Is Gresham's Law?
"Bad money drives out good." — Gresham's Law, attributed to Sir Thomas Gresham (1519–1579)
Gresham's Law is an economic principle named after Sir Thomas Gresham, a financial agent who served Queen Elizabeth I of England in the 1500s. It describes a pattern that has repeated throughout the history of money:
When two forms of money circulate side by side — accepted at the same face value but with different real worth — people will spend the money that is worth less and save the money that is worth more.
In plain English: given a choice, people hold onto the good stuff and spend the not-so-good stuff.
Who was Sir Thomas Gresham? He was a wealthy English merchant and financier who advised the English Crown on financial matters during the 1500s. He also founded the Royal Exchange in London — an early version of a stock exchange. Although the principle bears his name, similar ideas were described by earlier thinkers. The term "Gresham's Law" was coined much later, in the 1800s.
A Clear Example
The Gold Coin & the Copper Coin
🪙 Imagine This Situation:
You have two coins in your pocket. Both coins are accepted as worth $1 at any shop in town.
- Coin A is made of gold — it has real, lasting value as a metal.
- Coin B is made of copper — it is worth much less as a raw material.
Which one do you spend at the shop, and which one do you keep?
Almost everyone would spend the copper coin and keep the gold coin.
Now multiply this decision across millions of people over many years. The result?
- The copper coins (bad money) stay in circulation — everyone is spending them.
- The gold coins (good money) disappear from everyday use — everyone is hoarding them.
This is Gresham's Law in action. The law also explains why old silver coins vanished from everyday use in the United States after 1965, when coins switched to cheaper metals — people hoarded the silver versions and spent the new ones.
Key Concepts
What Makes Money "Good" or "Bad"?
Gresham's Law depends on understanding the difference between good money and bad money. Here is a simple comparison:
✅ "Good" Money
- Holds its value over time
- Scarce — cannot be created easily
- People want to save it
- Examples: gold coins, silver, Bitcoin
❌ "Bad" Money
- Loses value over time (inflation)
- Can be created in unlimited quantities
- People want to spend it quickly
- Examples: paper dollars, fiat currency
💡 An Important Nuance
Gresham's Law works specifically when both forms of money are forced to be accepted at the same official price by law. In a truly free market where prices can adjust, this dynamic plays out differently. When Bitcoin is priced freely and separately from dollars, both can coexist — but people still tend to spend dollars and hold Bitcoin.
The Bitcoin Connection
How Gresham's Law Applies to Bitcoin
In the context of Gresham's Law, Bitcoin is often considered "good money" because it has a permanently fixed supply of 21 million coins — and many people believe it will hold or grow its value over time.
Traditional currencies like the Canadian or US dollar are often considered "bad money" in this framework — because governments can print more of them at any time, which reduces their purchasing power through inflation.
The result? People spend their dollars and hold their Bitcoin. Gresham's Law helps explain exactly this behaviour.
-
1HODLing — Holding On for Dear Life Many Bitcoin holders prefer to "HODL" (a term meaning to hold rather than sell) rather than spend their Bitcoin. This is because they believe Bitcoin will appreciate in value over time, making it more valuable as a long-term store of value than as a coin to spend at a café.
-
2Fiat Currency as "Bad Money" Traditional fiat currencies — like the US dollar or Canadian dollar — can be printed in unlimited quantities by their central banks. This creates inflation, which slowly reduces what your money can buy. Because fiat loses value over time, it makes sense to spend it rather than save it.
-
3Bitcoin Is Rarely Used for Everyday Purchases Because Bitcoin is seen as "good money" that appreciates, most holders are reluctant to spend it on groceries or coffee. This is why Bitcoin has not yet become a widely used day-to-day currency, despite having the technical ability to be one. People spend their dollars; they hold their Bitcoin.
-
4Economic Rationality Under current conditions, it is simply rational for Bitcoin holders to keep their Bitcoin rather than spend it. Spending Bitcoin today means giving up potential future gains. As long as people expect Bitcoin's value to rise, they will continue to spend dollars — the "bad money" — and save Bitcoin — the "good money." This is Gresham's Law in its most modern form.
⚠ This Does Not Mean Bitcoin Will Rise in Value
The fact that people treat Bitcoin as "good money" reflects their belief that it will hold or grow in value — not a guarantee that it will. Bitcoin's price is highly volatile and can drop dramatically. Applying Gresham's Law to Bitcoin is an educational framework, not a prediction or investment recommendation.
In Plain Language
Summary — What to Remember
- Gresham's Law says that when two forms of money coexist, people spend the one they value less and save the one they value more.
- "Bad money" (like inflating paper currency) drives "good money" (like gold or Bitcoin) out of circulation — because people hoard the good stuff.
- This is why many Bitcoin holders spend their dollars and hold their Bitcoin, not the other way around.
- It helps explain why Bitcoin has not yet become an everyday spending currency, even though the technology would allow it.
- Understanding Gresham's Law helps you think more clearly about what money is, how it behaves, and why people make the choices they do — whether with gold, paper money, or Bitcoin.
Keep Learning
Want to Learn More About Bitcoin?
Maple Bitcoin School
A Canadian Bitcoin education community on the Skool platform. Designed for learning — not for buying Bitcoin. A good starting point if you are new to these ideas.
Join Maple Bitcoin School →Referral link — Ted Lee may receive a small reward if you sign up. This does not affect your cost.
Related Pages on BTC.TedLee.ca
Other Pages from the Original Navigation
⛔ Final Reminder — Not Financial Advice
- This page is for educational and entertainment purposes only.
- It is not financial advice, tax advice, or legal advice.
- Bitcoin is highly volatile. Its price can drop dramatically without warning.
- Do your own research. Verify everything independently.
- Consult a licensed financial or tax professional before making any financial decisions.
- Never invest money you cannot afford to lose completely.
✅ Affiliation Disclosure
Ted Lee is not an employee, contractor, or shareholder of Maple Bitcoin School or any other service linked on this page. The Maple Bitcoin School link is a referral link and is clearly labelled as such. This site does not carry paid advertising.
Transparency
Sources & References
All content on this page is drawn from the following sources. All external links open in a new tab.
- Primary source — original page, fetched April 2026 btc.tedlee.ca/greshamlaw.html — Gresham's Law (Ted Lee)
- Bitcoin education main page btc.tedlee.ca — Bitcoin Education (Ted Lee)
- Related topic — fiat currency btc.tedlee.ca/fiat.html — What Is Fiat?
- Related topic — dollar-cost averaging btc.tedlee.ca/dca.html — DCA Strategy
- Referral link — Bitcoin education community Maple Bitcoin School — skool.com/maplebitcoin
- Historical background — Gresham's Law Gresham's Law — Wikipedia
- Main TedLee.ca website TedLee.ca — Freedom Through Knowledge