Deflationary Currency, Bitcoin, and Just a Store of Value ...
Bitcoin and the Deflationary Spiral Escape Velocity
Please stop comparing Bitcoin to fiat
I am getting tired of repeating myself so here's to hoping I can reach a broader audience assuming this doesn't get downvoted into oblivion. If you read articles like this- https://medium.com/@vijayboyapati/the-bullish-case-for-bitcoin-6ecc8bdecc1 You are fundamentally misunderstanding money. The entire purpose of money is to facilitate trade. It is not desired to be an asset that appreciates in value. If money continued to increase in value over time, people would spend less of it. This would lead to less active markets (higher volatility). Business incomes would decline ( layoffs unemployment goes up) as people decide to spend less because their money will be worth more tomorrow. Consumption goes down, revenues decline, companies go out of business, unemployment goes up and up and we end up in a deflationary spiral that is unstoppable. This eventually leads to a depression, bread lines, nationalization of industry, and war. Yes, War. It is NOT DESIRABLE for money to increase in value. We want people to spend money. Constantly. Keep those markets going. More trade. More trade. Buy bonds, buy stocks, buy fuckin candy bars, whatever, just spend your money. Keep trade going. That is the entire purpose of money - to facilitate fucking trade. This is why we have an inflationary system. To encourage spending money - to encourage trade. Yet here we are. In the HODLverse where everyone thinks that it's a good idea to have money that continually increases in value while they chant "HODL" which is literally what I just described - a massive decline in trade. Bitcoin is a commodity. It is an investment. Like gold, or oil, or muni bonds, or treasuries, or a million other things. Those are the comparisons you should make.
Money should be a good store of value, medium of exchange, and unit of account. There are a lot of barriers preventing bitcoin’s widespread use by the aforementioned criteria, let’s take a look and see how they might be solved.
Lack of Understanding
Bitcoin is complicated and unfamiliar. This is a huge barrier to entry because people distrust what they don’t understand, and ease-of-use and simplicity is what usually sells a new technology. If you have read this series from the beginning though, you may now see some potential upsides to such a drastically different system than what we are used to. Many resisted smartphones for a time (and a few still do). The benefits have to outweigh the costs of adoption, so we may see niche cases being the early adopters (like citizens of Venezuela or remittances payments). Also, when a new complicated technology rolls around, it sometimes takes a generation before it becomes widespread; young people are particularly adept at adopting new tech.
The tendency of bitcoin’s price to change rapidly or unpredictably is what comprises volatility. When you search for bitcoin you may find that most of the results you get (and the discussions happening on forums) are about it’s price. This is understandable, it has seen some crazy moves both up and down over the years facilitating the potential for huge gains (and huge losses). Still, over time the price certainly is increasing. Unless you bought in a single 2 month period in 2013, holding bitcoin for longer than 2 years at any point in its history would land you in a better position than when you started. And, when viewed on a logarithmic scale (used in long-term stock charts), the trend is quite clear: (Bitcoin Price 2012-2018, Logarithmic Scale (bitcoincharts.com)) There is a risk/reward to adopting new tech, and this is no exception. But, my goal is absolutely not to “sell” it to you as an investment by any means.
This is not financial advice. We’re simply looking at the pros and cons of this space, and I encourage everyone to do their own research and come to their own conclusions. Never invest anything you aren’t prepared to lose.
This meteoric rising (and crashing) of the “price” (which, I’ll point out, might just as well be considered an exchange rate) understandably makes it pretty difficult to use bitcoin as a currency. If it moves a few percent in a day, and can move a few hundred percent in a month, purchasing a car or a house could cost you significantly more by the time your finished closing. That’s just not viable, and certainly not a good unit of account. However, I see the volatility in price simply as growing pains. It is the market that dictates the price of bitcoin, quite literally, it’s traded like a stock. This is referred to as speculation (“the purchase of an asset with the hope that it will become more valuable at a future date”). Speculation happens between national currencies already, but they are generally stable in comparison so it’s not lucrative. People are unsure of how this whole bitcoin thing is going to play out. It’s not like anything we’ve ever seen, it’s difficult to understand (and use), and it’s not accepted at every corner store or online business. Many in the space are just here for a quick buck, and they sell it when the price rises to get back “real” money we are used to, that is “stable” in price against other currencies, and can predictably buy goods and services. The way I see it, all of these will concerns diminish in time. Though Amazon or Target don’t yet accept bitcoin, Microsoft and Overstock.com do. Some cities and towns across the world are embracing it a lot more than others. It’s not surprising to see San Francisco accommodating the new technology. But, other cities like Portsmouth in New Hampshire with numerous cafes and shops accepting bitcoin (and “Dash coin”) might surprise you. There are maps available to see where crypto-currencies are accepted at locations near you, and the amount of them are increasing, albeit slowly. It’s a bit of a chicken-and-egg situation, but that hasn’t stopped revolutions from happening before. Consider when cars first came about, roads were dirt and mud which cars didn’t do well with. It took building massive infrastructure before cars could ever become mass-adopted, but we spent the time, money, and effort because we saw the potential advantages. It will be trivial for businesses to accept bitcoin compared with pouring hundreds of millions of dollars in asphalt to connect our world. Other parallels include train tracks, phone lines, electricity lines, communication satellites, etc. Each of these replaced or iterated on previous functional technologies, and required massive upfront costs before the benefits were available. It’s clear now that we made some good choices there but there were doubts at the time. Despite some pretty major setbacks, bitcoin’s trend is up. Interest is growing and more businesses and individuals are actually using it. But due to the trading mentality, the uncertainty with regulations, uncertainty in the technology itself, uncertainty that the price will not drop, and other factors, emotion and greed encourages people to sell in flocks if the price climbs high enough. Furthermore, right now with a large enough stack of money one can influence this market in drastic ways, and cries of manipulation of the price are not unfounded. So-called “whales” can buy and sell huge amounts of coins and the price can jump a bit each time. Coupled with uncertainty in the space, and so many “investors” trying to time the markets, we end up with a pretty volatile landscape where the price is not stable. My argument is that this is diminishing as it gains in popularity, and it is gaining value because its utility is growing (see the network effect”) and the utility itself is slowly becoming more apparent.
Volatility is actually decreasing.
Bitcoin Volatility Over Time(bitvol.info) In the period from 2011 to 2014 bitcoin’s volatility often spikes into the 15% range. But from 2014 to the present, volatility has only just spiked above 7% twice, spending most of it’s time below 5%. Even the large boom and bust in price at the end of 2018 seems tame compared to the early years. The trends show the price going up over time, and volatility going down. The more actual use the coin has (people saving and buying with bitcoin), the percentage of people entering the space to use it the way it was intended increases, the percentage of “stock traders” declines. And as more capital enters the space, the less influence whales have (because the current against which they swim is getting stronger). And as the price stabilizes, traders will become less interested. There is a critical point where this becomes a negative feedback loop. I could be wrong, but the idea is at least founded in reality, and it would solve the unit of account issue if the price could stabilize to within a few percent per year. Similarly, as a store of value, bitcoin becomes more viable in this scenario. This is coupled with the fact that although bitcoin is somewhat inflationary now as the supply is increasing (bitcoins are “discovered” as rewards for mined blocks), the amount of discovered coins are cut in half every few years. This “halving” is logarithmic, meaning eventually the amount of coins discovered is infinitesimally small, and total supply will asymptotically approach 21 million coins (the maximum supply that we will ever see). This model of supply is actually meant to mimic gold because it’s a well-known store of value and monetary device throughout history (though it is not easily divisible, and not as portable as bitcoin). In both bitcoin and gold, mining is more fruitful in the beginning, and as we extract the low-hanging-fruit, mining requires greater effort and yields less return. World population is increasing which leads to bitcoin becoming deflationary in the future if demand continues (the supply won’t increase beyond 21 million). And, I argue that it will become more valuable in time due to the network effect as bitcoin use becomes more widespread (the value of being able to exchange with more people anywhere, any time, and without permission from anyone). This is a positive feedback loop, and shows how bitcoin is deflationary long-term. While deflation is generally considered negative by economists, the main reason is based around debt which isn’t possible in the same way with bitcoin because bitcoins cannot be created out of thin air like fiat currency. The discussion of deflation vs inflation is an important one, and bitcoin’s monetary policy is an outlier compared with national currencies which are typically inflationary. The US dollar for example averaged 3% inflation since the year 1900. That means that over the last 100 years, a dollar has lost over 95% of its purchasing power. You could buy 95% more stuff with $1,000 last century, or, saving $1,000 from 100 years ago would buy you 95% less stuff at present. Put another way, purchasing power is cut in half after about 25 years, a concern for anyone retiring for over 20 years with a fixed retirement sum. Some other national currencies have higher inflation rates, and there are numerous cases of inflationary spirals over the years. A few examples include Germany 1923, Hungary 1945, China 1947, Vietnam 1988, Peru 1990, Yugoslavia 1992, Zimbabwe 2008, and right now in Venezuela 2018. Entire countries of people have lost essentially all of their money, and it keeps happening over and over. A wise man would tell you it’s dangerous to say “it could never happen here”. *UPDATE: Turkey is also now in financial crisis. This is our money with which we hold and exchange value, our earnings, our savings, our livelihoods. Maybe it’s time we had, at least, another option outside of government control. An option that governments can’t destroy through mismanagement. A neutral option that ignores all borders, is open to everyone, and can be accessed anytime from anywhere.
The Fear of “Hacks”
It’s a very real threat to have all your money stolen, if your bank was robbed you are protected by FDIC (in most cases only up to $100,000). The vast majority of coins that have been stolen have come from hackers attacking “exchanges” and getting away with millions. These exchanges are websites where you can trade bitcoin for other crypto-currencies (or “alt-coins”). You can also buy and sell bitcoin on them, and subsequently people end up storing a lot of coins on these exchanges, and the exchanges hold the “private keys” so they can execute trades. Cryptographic private keys are analogous to a key that opens a door, or, a key that locks a message in a box before it is sent to the recipient. In our case the door opened allows you to sign your message and spend coins, and the message is your transaction on the bitcoin network. Anyone with your private keys can spend your coins. Exchanges are a honey pot of thousands of private keys that represent a lot of money. If a hacker can break into the exchange and steal the keys all at once, their work will pay off. This is why any crypto guru will advise you not to store large amounts of coins on exchanges, and rather transfer them in your own wallets where you hold the private keys. The mantra is “your keys, your money; not your keys, NOT YOUR MONEY!” Of course your own computer can be hacked, but you are not as big a target as an exchange which may hold vast sums of money. There are also some pretty safe ways to store your coins if done right. Centralized exchanges are a necessary evil for many people because they facilitate acquiring and trading coins easily. But decentralized exchanges are becoming more common because they allow you to trade while keeping your coins in your control at all times. They need some work and more users, but it’s a promising solution to this problem. Summarizing the above, the big hacks you read about are virtually eliminated if your keys are in your control and you keep them safe.
Transaction fees are generally negligible in a bitcoin transaction, but in many ways “fees” are holding us back. Interestingly, this is a symptom of being in the very early days. Firstly, there is a lot of work on “scaling” crypto-currencies (making fees even lower than they already are and increasing transaction speeds). This is just an engineering problem, and many people are working on solving it in many different ways. Other currencies like NANO or IOTA have different underlying tech and have zero fees and instantaneous transactions. In fact, most fees people encounter aren’t fees from bitcoin transactions; instead, they get hit with fees when exchanging between national currencies and bitcoins. In order to electronically trade USD($), EUR(€), or YEN(¥) with bitcoin, we need to hook into the closed-off for-profit banking network and we need third-parties to do so (and they take their cut). But even these fees could be avoided in time. For example, you can buy bitcoins with cash directly from a person (localbitoins.com). And, it might seem distant, but in the future you may end up receiving bitcoins as your salary, from a friend, or from accepting them in your place of business. Likewise you can spend your bitcoins directly to other bitcoin users. Getting coins directly eliminates all the exchanging and associated fees because once your money is on the bitcoin network, fees will be negligible (especially as these networks evolve).
Right now it’s easier than ever to acquire some bitcoin. People can download “Coinbase” or “Square App” on their smartphone and purchase some using a credit card in a few minutes. Depending on which service you use and how much you want to buy, you may need to send a picture of your license for KYC regulations. However, as I mentioned above, there are risks to storing all your coins on exchanges, especially with large amounts. I always recommend transferring them to a wallet where you control the private keys. But using wallets and storing private keys (and “seeds”) securely, is not as straightforward as we would like. This is a major factor holding back adoption, because if it’s not easy to use, people will consider it too much effort. The next post in this series digs into wallets and storing your coins.
03-14 21:04 - 'Well done. I've never encountered that counter before, and I make this argument often. / I think the assumption on my part that bitcoin will be so successful that it creates a fixed supply of money has to go. / I don'...' by /u/SilencingNarrative removed from /r/Bitcoin within 7-17min
''' Well done. I've never encountered that counter before, and I make this argument often. I think the assumption on my part that bitcoin will be so successful that it creates a fixed supply of money has to go. I don't think its possible for there to be a strictly fixed supply of money. As good as bitcoin is, there is always the risk that some exploitable protocol flaw will be discovered that will render it worthless. Or that another crypto currency will come along with a better overall set of incentives between wallet holders, node operators, miners, and developers. Or that another crypto will come along with better protocol details like signature algorithms, proof of work algorithm, block distribution mechanism, block reward handling and privacy guarantees. So at a minimum, there will always be a number of forms of money that compete for market share and the combined market cap of those will grow and shrink over time. So by sitting on any one form of money, the holder is making a bet, not unlike the bet one makes with holding shares of stock, and thereby taking a risk. I do think that those bets will yield a much more predictable return than, say, buying shares of an index fund like S&P 500 and holding that, but you would be nuts to put most of your savings over your working life into a top dog like bitcoin and not invest in other asset classes. I do think that central banks will lose the ability to manipulate interest rates through printing money and fractional reserve (because people will park their cash into hard cryptos rather than allow CBs to steal from them), and that this will push the economy into deflationary territory, at which point fiat currencies will also stabilize become mostly deflationary. So while overall I expect the money supply to stabilize and no longer be easy for CBs/GVTs to manipulate, the exact supply will fluctuate just as commodity prices do relative to one another and economic conditions. That said, the banking system is so fragile compared to the bitcoin network that, when it next stumbles, I expect the current top dog, bitcoin, to suck up a huge amount of liquidity in the process. So I believe our original point of disagreement was whether small amounts of deflation were enough to cause an economy to go into a death spiral, or if they tend to fix themselves. If they generally don't fix themselves, then the argument for outlawing hard cryptos starts to gain teeth. I am still asserting that small amounts of deflation fix themselves, and attempting to ban the use of hard cryptos is like trying to ban criticism of the government in order to reinfornce its authority so it can fix things more efficiently without criticism. ''' Context Link Go1dfish undelete link unreddit undelete link Author: SilencingNarrative
01-30 22:33 - 'So, this doesn't really track. A distributed, decentralized fixed supply currency would have several advantages, chief of which is that world governments can't continue to inflate them at whim, which effectively [robs] the...' by /u/paperraincoat removed from /r/Bitcoin within 0-10min
''' So, this doesn't really track. A distributed, decentralized fixed supply currency would have several advantages, chief of which is that world governments can't continue to inflate them at whim, which effectively [robs]1 their populace of purchasing power (taxation without representation). On the downside, they encourage [hoarding]2 . There was no way to fairly distribute coins here, we still have the vast majority, some 80%+ of coins in the hands of only a few hundred people and exchanges. Ideally we want Bitcoin to go to say, $100k a coin and chill there all cozy, co-existing with fiat, stocks, commodities and the like. If things go to $1,000,000+ a coin where Bitcoin is some financial black hole vacuuming up all the wealth in the world we'd be facing a very strange worldwide [deflationary spiral]3 . You can read up on Japan's woes over the past twenty years trying to get themselves out of a [deflationary economy]4 , it's pretty intense. I don't want a future where the Winklevii own 15% of the world's wealth and start construction on their own private Death Star. ''' Context Link Go1dfish undelete link unreddit undelete link Author: paperraincoat 1: *ww*f**bes.com/s*te*/bil*fl*x/2011/03/03/*ou-*all*it-*nfla*i*n-i-*a*l-*t-*he*t* 2: steemit.*om/m*ne**@calab*r24p/*un*ing*ec**o*i*s-o*f-a-fixed*cu*re*cy-s**pl*-is-a-*e***b*e-*dea-h*re-s-why 3: *n.bitcoi*.**/*i*i/De*lationary***iral 4: www.***r.org*papers/w10*7* Unknown links are censored to prevent spreading illicit content.
Ordinary people understand Bitcoin; the experts do not
It's really interesting to see all of these mom and pop "investors" start putting money into Bitcoin. It's easy to deride them and say that they don't know what they're doing, that this is a bubble. "You can't have deflationary money." "It's not backed by anything." "It's just an unproductive asset." These are all arguments from the pseudo-intellectual elite. They're well-reasoned arguments that make sense on the surface, but they don't get through to average Jill. Average Jill understands many things that experts do not. Aristotle, a man who made his living off of words, believed that a male and female horse will have a different number of teeth; horse breeders obviously knew better, but they did not record their narrative and history has forgotten what they knew. Average Jill knows better than the intellectuals. Average Jill understands that if everyone thinks that something has value, then it will have value. Jill understands that fears of "hoarding" and "deflationary spirals" are nonsensical to their very core. Average Jill understands that the economy is driven by real wealth and production of goods and services; not by central bankers who buy and sell government debt to satisfy their own set of arcane laws that they deem sacred. Average Jill understands the feeling of ownership and security that Bitcoin provides, one that simply does not exist in a bank account that can be revoked through fraud or numerical error, or in a stock whose value is dependent on the morality of the managers and the honesty of the auditors. This is a sense of ownership that has not existed in human history; save perhaps those pioneers who held their wealth in their land and the fruits of their labor, and defended it with lead and blood. Humans want hard money. It's hardwired into our psychology. Economists say that this makes us ignorant of economics; we know that this and statements like this make them ignorant of the real world. Bitcoin has risen tremendously, despite the negative press covfefe, and will continue to rise because Average Jill sees it for what it is-- a game changer. Disclaimer: I am long $BTC, and long $JILL. Statements should not be interpreted as not giving advice to buy or sell; the only advice is to
What will happen to gold, silver and Bitcoin during the next economic crisis.
Here are some thoughts on how this might play out. Take it with a grain of salt but try to understand the fundamentals which are sound. If you look at the 2008 crisis you will see gold and particularly silver actually dumped hard when the crisis hit. Silver going to $9! The reason is simple; most assets will decline as stocks collapse as they need to liquidate assets to bail out their ugly positions. Stocks right now are a parking lot for low interest rate money. As interest rates get bumped (q4 / q1 q2 2018) stocks will deflate and perhaps violently. Existing bonds will be dumped for newer issued bonds at higher rates. There will be no escaping this deflationary spiral other than parking in dollars as all assets accept one will be actively pumped. Bitcoin however is not held by a majority of people invested in stocks. Some yes but a bulk of crypto investors are crypto investors and not positioned too heavy into stocks. This means while some will liquidate crypto to cover margin calls etc Most will not. Crypto and especially bitcoin will very likely not fall very far when the next crisis hits. This will not go unnoticed by those scrambling to find a new parking lot for their rapidly deflating assets. Capital will flow into crypto like you have never seen it. Metals will not bounce until the initial crisis bottoms and knee jerk stimulus is put into place. By this time many gold bugs will have capitulated and shifted a lot of wealth into crypto. If Bitcoin had a market cap of $7Trillion like gold we might not see a pump during deflation as bitcoin is a commodity and all commodities will be falling in price. What is different however is bitcoin is $100B and the amount of capital looking for a flight to safety will be $15 Trillion or more. With less than 8 million bitcoins liquid and for sale we will likely see a giant premium as it sucks in $1T to $2T of homeless scared money. Bitcoin will likely skyrocket to $75,000 or more before crashing back to earth at maybe $20,000 and quickly rising to a stable $35,000 Anyway that's my thoughts of q1 to q3 2018 when I think a massive deflationary collapse will happen. As the criminal oligarchs in power freak out they will quickly pump liquidity back into the markets at a rate that will outpace confidence causing hyper inflation which will then call gold, silver and yes bitcoin again to make meteoric rises albeit offset slightly by a then plummeting dollar valuation. The only way 'the state' and their bank cartels will be able to hold onto control will be to use bitcoin as a reserve currency so look for bitcoin market cap to reach a minimum of $5T by 2020 and a corresponding price of $250k which will be worth around $125k of today's money. Gonna be wild.. Metal bugs should liquidate positions and buy bitcoin and if they like, buy some metals after they are 'halved' after the crisis hits bottom.
The real and imagined problems with Bitcoin[part1]
The more you read about bitcoin, the more patterns will emerge as to what people think will be the reason bitcoin cannot succeed. Many of these concerns are silly... and others are worthy of further thinking. So in no particular order I shall list them Perhaps the worst argument of all against bitcoin is that it's creator is a mystery. This is a bad argument. It's like saying that your software calculator is evil or bad because you do not know the name of the programmer who wrote it. Bitcoin is just a program and a program is just a tool. The source code is open and transparent. Everyone involved knows the rules and there is no mystery. So why would no one want to take credit then for the creation of something so important? I can think of one glaring reason among others.... you will notice that bitcoin investors will typically not answer questions about how many bitcoin they own. That's the smart thing to do. It's estimated that satoshi has somewhere between 1-2 million bitcoins. If his identity was known people might try to steal it from him. They might kidnap members of his family or people that he loves. Having that many bitcoins and letting it be known is simply dangerous. Another silly argument against bitcoins is that it is a ponzi scheme. Bitcoin is no more a ponzi scheme than a stock is. If someone buys a stock and that company starts to go south the stock price will fall and the latest ones to buy in to the stock will lose the most. In a way that resembles a ponzi scheme... but that's all. The only way you could even claim that bitcoin resembles this is if you assume that it's going to fail. So right away anyone who calls it a scheme is telling you that it is going to fail and that they can predict the future. Another problem frequently cited around bitcoin is its volatility. It has been claimed that bitcoin can't be used as a currency because it is too volatile. The problem with this theory is that reality proves it wrong. Even during the times of its greatest volatility there are still transactions happening. People still use it as a currency. A merchant who accepts bitcoin can tie in with a company like coinbase and immediately convert to cash and assume no risk holding it. Things that are sold for bitcoins can be tied to the price of anything quite easily with simple programs. You could have an online store and have everything priced in bitcoins and have the amounts tied to something like dollars or even gold. This doesn't mean volatility isn't a problem. It can make things pretty inconvenient , but it isn't as big of a deal as some people make it out to be. The reason why is because the volatility of bitcoin is linked to it's userbase. The userbase cannot increase (or decrease) exponentially forever. The amount of people joining or leaving bitcoin won't continually be changing by large amounts in short periods of time. Bitcoin is still in it's infancy so for the time being you can expect volatility. If all of the sudden you had 2 or 3 or 4 times as many people using the dollar as there was days before you would probably be seeing volatility with it too (despite how fast the Fed seems to be at creating new ones) . Just like a stock, the deeper the markets are the less volatility there is. Intrinsic value is another often cited problem with bitcoin. Some theorists claim that bitcoin needs an intrinsic value to enforce that it will always be worth something. Gold if not used as money can still be used as jewelry. Dollars, although not backed by gold, are backed by men with guns. Some people claim that bitcoin isn't just a currency but rather it is a network and that the intrinsic value of bitcoin is this network. What someone is really saying when they say that money needs intrinsic value is that it needs to be good at something besides being money to be good at being money. That's pretty unnecessary. All that intrinsic value does for gold as a store of value is create a psychological effect. It adds a price floor. But that price floor isn't the actual price and therefore it is only creating a psychological crutch. I'm not saying that it is entirely useless. A psychological crutch adds confidence and confidence is good. But it also adds burden. A money that is backed by something like gold is burdened by gold. Can you still instantly transport it across the world? Could you drop an empty safe in the ocean and then send it into the safe while it was sinking at a depth of over a mile? You can send bitcoins in that fashion. You could keep all the gold in some centralized place and send the money but then... that introduces storage costs and centralization and counterparty risks. Bitcoin obviously has value to some people and it is already used as a currency so to say it can't be a currency because of this reason or that is kind of ignorant. Many economists claim that bitcoin is doomed because it will lead to deflationary spirals. Why spend something now when you know it's going to be worth more tomorrow? is the oft-cited question. The problem is that economists have certain ideas and they try to fit reality to those ideas rather than their ideas to reality. There are three main counterpoints to this. THe most popular one is that there is a cost in deferring payment. Why buy a computer now when in a year you know you can get a more powerful one for the same price or cheaper? Because you need it now. Another counter point is that with bitcoin a deflationary spiral is essentially impossible because you will never get the whole market to agree that the price is going up. In any market... especially bitcoin you have bulls and you have bears. If the price suddenly rose 10 times you can bet that a lot of people would be trying to get rid of their bitcoins by "buying" goods or dollars with them. Nothing only goes up in value. If it did then it's chart would look like a straight line. Bitcoin doesn't have such a chart. Economists tend to look at bitcoin in isolation when they talk about deflation. But can the sudden and shortlived bubbles that bitcoin experiences harm the economy? If bitcoin was the only currency to exist then you could make the argument that merchants would suffer during these times because there was less spending. But we don't exist in such a world (and nor will there ever likely be a world where the only currency is just 1 digital cryptocurrency) . And even if we did ..... those periods of rapid deflation are not sustainable and short lived.
I'm somewhat new to Bitcoin, but I find it extremely fascinating and have been thinking more about the opportunities and possibilities the technology provides. I'm mostly thinking out loud here, and if I'm being naive or downright stupid, I'm sure Bitcoin won't be shy. Traditional economics lists three functions of money: means of exchange, store of value, and unit of account. Bitcoin has pros and cons as a means of exchange: lightweight transactions are great, but it's true usefulness will not develop until more parties accept Bitcoin. (This seems to be what some people mean by developing the "Bitcoin economy".) Of course, this everyone knows this. As a store of value the story seems troublesome. I think traditional this doesn't just mean money retains its value, but that the power is (relatively) stable and predictable. Rising prices cause at least two problems: you are reluctant to spend because the money will be worth more tomorrow (deflationary spiral), and you'd never take a loan denominated in a currency on a double-exponential growth curve. So what I'm thinking about is, how do we put the collective value of Bitcoin to work? In the USD economy (to choose a fiat currency), much of our "dollar net worth" is not in dollars, but in assets (and, more importantly, investments) denominated in dollars: US real estate, 401(k), investment accounts, etc. Even money I basically think of as cash, e.g. a totally liquid money market account, is being "put to work" by the bank, and it yields a small return. If you want exposure to another currency, you don't buy a bunch of Euros and stash them under your bed, you buy a Euro-denominated investment. Since it doesn't seem like anybody wants long-term loans in Bitcoins right now, banking-style deposit and lending doesn't seem like it will work. Until some country converts to Bitcoin (!), there is no Bitcoin denominated real estate. The other option seems to be stocks. What we need to develop a Bitcoin economy, which I mean in a broader sense, is a Bitcoin stock market. Bitcoin also fails as a unit of account. Even parties who accept Bitcoin have prices is native currencies and use the current exchange rate. But what happens when you have companies funded with Bitcoins, with stocks denominated in Bitcoins, paying dividends in Bitcoins, paying for services from other companies in Bitcoins?
Bitcoin Deflationary Spiral. Close • Posted by 1 hour ago. Bitcoin Deflationary Spiral. I'm sure that bitcoin will be an amazing way of storing value due to its properties. I simply don't see the need to implement the lighting network, why would you want to have a faster way to pay with bitcoin when something that you payed, for example, 10$ in 2013 is now worth about 1000$? I know that ... While a deflationary spiral can be a concern, by the time it happens we expect many more second layer solutions to exist on top of Bitcoin Core. While Lightning Network speeds up Bitcoin transactions on the 2nd layer, other solutions will arise to compensate for eventual monetary issues such as deflation. Although our opinion is subjective, we do not believe Bitcoin is at risk of a ... What Is a Deflationary Spiral? A deflationary spiral is a downward price reaction to an economic crisis leading to lower production, lower wages, decreased demand, and still lower prices. Deflation… With the deflationary spiral, they fear that there is no place to cut rates anymore (and that is why, today, they must resort to unconventional instruments such as quantitative easing). Against inflation, you can increase rates however much you need, but against deflation there is a lower bound of zero (or, nowadays, we can say a slightly negative lower bound). But the whole thing stands and ... Among the mainstream financial media and economic pundits there is a great deal of skepticism about Bitcoin. Critics have come up with all kinds of reasons why they believe Bitcoin fail. A particular argument you hear repeated ad nauseum is that Bitcoin's limited supply will produce a deflationary spiral. Now there are two forms of…
Keiser Report A Deflationary Spiral E1534 - YouTube
What kind of cashless society do you want to live in? Chamath Palihapitiya shares tips to fight against this massive deflationary spiral and Andrew Poelstra ... A Global 2020 Recession is a reality. Quantitative Easing, Money Printing, and rapid expansion hasn’t brought the growth, and a contraction is coming. Just like during the Great Depression, it ... (Part -3 )Deflation, Deflationary spiral, Disflation and Reflation. Deflationary FORCES: Flight to Safe Havens Gold, Silver, and Bitcoin! Crush The Street. Loading... Unsubscribe from Crush The Street? Cancel Unsubscribe. Working... Subscribe Subscribed ... Deflationary Spiral Will be STOPPED by Hyperinflationary Measures by Central Bankers! ... QE Infinity Will Ignite Bitcoin, Gold & Silver - Duration: 57:28. Nugget's News 73,548 views. New; 57:28 ...