There is hidden inflation that comes from other crypto currencies.
Once Bitcoin inflation is too strong and people are not willing to sell, it becomes profitable to start another currency. That currency will absorb liquidity and the deflation of BC stops. Like information in the internet, value flows around obstacles.
That is a really good point. Bitcoin "inflation" will stifle the Bitcoin economy. Because if you are holding Bc then prices on everything are dropping.
This effect of deflation is why Japanese economy is so broken. And why Governments and central banks will do almost anything to keep inflation going.
Bitcoin is deflationary by definition, not inflationary. Once the last coin is mined that's it - that's all there will ever be. I think you might have inflation and deflation backwards. Inflation can result from a large supply of currency being injected into a monetary system (ie: "bailouts"). This injection dilutes the value of all existing units of currency. This can cause prices to rise (though not always). In other words: the value of the good or service is relatively static, but the value of the money decreases due to the supply being larger. What happened in the Weimar Republic (hyperinflation) has nothing to do with Bitcoin price swings... they turned the money printers on max and diluted themselves into oblivion trying to prop up the economic machinery. This is quite the opposite of what is happening in BTC land. BTC price swings are just speculation (aka gambling with extra steps).
It's the opposit in fact, inflation is built in bitcoin. Very slow inflation indeed that may lead to the increase in value of one bitcoin if more and more people do bitcoins but the number of bitcoins always go up.
The relatively predictable deflation rate of Bitcoin is completely swamped by Bitcoin's extremely high exchange rate volatility versus other assets. Inflation for the dollar and other major currencies is not really a problem anymore because when money supply increases or money becomes less scarce that excess is now absorbed by speculative increases in asset prices rather than CPI inflation. Thus housing and stocks, and Bitcoin go up in value but by definition these prices don't matter for inflation. Bitcoin's run up in recent years is almost entirely due to easy money (low interest rates) not due to increased usage in commerce or intrinsic factors like Bitcoin's endogenous deflationary tendency. There is no reason, why in the face of a general financial crisis, where asset prices are generally falling, prices of houses and stocks, etc, are falling, that bitcoin would not also crash. Its current price is not supported by internal deflation or increased usage. Its current price is part of a broader asset price bubble that can and will pop someday, probably soon. There is no reason why sub $100 Bitcoin is not possible a year or two from now.
Bitcoin is not really like digital gold because gold has unique properties that can not be duplicated. Anybody can create a new cryptocurrency at any time. There is no scarcity of cryptocurrency as a whole.
Well, if we actually use BC as a leading currency, not just a store of value, it may end up increasing in value (ie it will cause deflation).
But this is one of the biggest reasons we would not want to use it as a measure of value or standard for deferred payment. Who wants to commit to future payments in a deflationary currency?
Salaries in a deflationary currency leads to unemployment (or one has to allow employers to unilaterally decrease wages at will).
Pensions and other government payments in a deflationary currency leads to bankrupt governments.
Also, consumption (and thereby the economy as a whole) will tank as delayed consumption will be a guaranteed win.
Finally, the super rich will be able to profit maximally if bitcoin replaces national currencies, as a deflationary currency inherently favors the already rich.
Bitcoin, as an asset, is wildly inflating. I could buy 1 BTC for $5K not long ago, but now it costs me almost $50K to buy the same exact amount of Bitcoin.
Inflation isn't strictly a function of the fed or the supply. Inflation can happen from demand-pull, which is definitely happening in the Bitcoin world.
Now that the cryptocurrency cat is out of the bag, the idea of a singular deflationary cryptocurrency only works if you pretend that all of the other cryptocurrencies don't exist.
Instead, we're seeing constant supply growth in the cryptocurrency space as new altcoins come online all the time. Even Bitcoin itself has been forked multiple times, effectively increasing the supply (albeit with caveats). I can trivially exchange BTC for BCH, so it doesn't really matter much that they're on different chains now.
The idea that cryptocurrency supply is fixed only works if you deliberately ignore all but 1 cryptocurrency.
Inflation definitely isn't a separate issue. It's a fundamental issue in the topic of currencies and money, as in deflation.
Inflation is the expansion of money supply. Once bitcoin reaches full supply, by definition there can be no further inflation from bitcoin. There can be price fluctuations in the value of bitcoin, but not inflation. It's necessary to differentiate between prices going up / down, as opposed to inflation / deflation.
I think there is a difference between an inflationary/deflationary currency and inflation/deflation of value.
The USD currency experiences inflation by adding dollars to circulation which causes the value of individual dollars to drop.
Bitcoin is deflationary. Bitcoin, as a currency, experiences deflation (bitcoins can only be lost, never added, over time after all bitcoins are 'found'), therefore the value of bitcoin value can only be increased as supply diminishes.
Deflation of a currency only increases the purchasing power of people who already hold that currency. If they start a business, they'll only be able to earn revenue solving the problems of other bitcoin holders.
Currently Bitcoin is neither inflationary nor deflationary.
It's a near zero swap (mostly other than fees). Nothing is created nor destroyed, which is why the primary argument for Bitcoin having much value today is as a value store.
You want to sell $1 million in bitcoin. Someone else is willing to pay you $1 million USD for those bitcoins. $1 million neither left nor was added to the economy. You now have the $1m USD to spend or invest as you see fit. You swapped positions, that's it. No deflation occurred at all.
I thought one of the problems with deflation was that people used to hoard cash and there was not enough money availale to facilitate normal daily trades. Such thing won't happen with bitcoin.
Bitcoin isn't even inherently deflationary. Inflation and deflation (as the words are commonly used) are set by supply and demand. The whole point of central banks is to control supply to steady the price.
It's only deflationary when demand rises. Demand could fall because of a shrinking bitcoin economy or because the velocity of bitcoin increases.
Interestingly, in the long run inflation may be problem with Bitcoin rather than deflation.
In 30-100 years (the numbers vary according to the source) the world population will start to shrink. From that point on there will be ever more money available per living person. Which, of course, mean inflation.
Central banks can counter it by burning money. It's not clear who would do such beneficial activity with Bitcoins.
You're mixing two definitions of inflation. Bitcoin undergoes monetary inflation as the supply increases until the late 21st century. Since the supply increases more slowly than the demand for the currency increases, the bitcoin economy sees price deflation. This isn't a particularly interesting phenomenon because it's common for the value of a currency to increase (price deflation) even as the supply of the currency increases (monetary inflation). This is what happens with gold when it is used as a currency, for instance.
When the terms "inflation" and "deflation" are used without qualifiers, they usually refer to prices, not money supply.
Bitcoin is inflationary. It is currently inflating at a low rate and that will decrease every four years.
That's not "deflation".
Further, money holding its value is a good thing. The only people who profit from inflation are governments with fiat and miners with bitcoin.
The people always suffer. The only reason bitcoin is going up in value despite inflation is its use case and technological ability is going up faster, and of course it started at zero.
You're right, there are not deflationary or inflationary forces at work. What is happening is simply supply and demand.
I'm thinking in a simple two-goods model here. "Currency" vs. "Products" - or "USD" vs "BTC". "Too much" supply of currency or "too little" supply of physical products drives the price up. In this model, that's the same as inflation, but you are right, as soon as there is a third good you can compare prices to that good and tell if it is inflation (all prices rise) or not (only the price of one good rises).
My point is not "it is inflation". Rather "it is inflation-deflation-supply-demand" (market reacting to changing supply and demand), as oppossed to "it is irrationality". If bitcoin is staying with us, and not banned etc., then demand for it will continue to grow faster than the supply will grow. I think the stable exchange rate of a fully established bitcoin will actually be at least a factor of ten higher than today.
Once Bitcoin inflation is too strong and people are not willing to sell, it becomes profitable to start another currency. That currency will absorb liquidity and the deflation of BC stops. Like information in the internet, value flows around obstacles.
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