Topic: Bitcoin is NOT deflationary. (Read 1456 times)

Velocity can not continue upward forever, Sure it can go a lot higher then it is now in BTC, but our financial transactions are initiated by human beings who have finite response times.  Even if we were spending all our income each DAY, we would eventually have to sleep and coins would be frozen during that time leading to an upper bound on Velocity.

Also the only forms of money which have shown that kind of monetary velocity are demurrage currencies such as the Woergl.  But BTC has no demurrage and soon their will be a contracting money supply, both these factors lead us to believe that velocity will be low not high.  If you actually believe that higher velocity is good or a solution to deflation then you should support Freicoin which includes demurrage and aims to higher velocity.

In the distant future when all coins have been mined. The supply will actually decrease as they are lost through stupidity, disasters and people dying without telling anyone that they owned them.

I will agree with that sentiment. If a good/service is priced in a currency that is consistently gaining strength, of course goods/services will be perceived to be "going down in price."

Seems each currency has a usage fee, both have value.

What does it do? How well does it do it?


No matter what type of currency you attempt to use, the greed factor, plus other variables, are missing from that Utopian equation.


If one is so inclined to use one over the other so be it!

8 )

Because there is a limited supply of bitcoin and a growing economy, some people think this must mean that prices will have to go down constantly. This reminds them of the disastrous episodes of deflation in the past and it makes them think it is bad.

What I am saying is that just because the supply of bitcoin is eventually constant, that does not mean bitcoin is 'deflationary'.  It does mean hoarding will be here to stay. It is rational and to be expected when the money supply is fixed. The price level expectation will be stable.

The MV=PQ equation can explain. It isn't the price level P accommodating the growing Q, it can't. It is the velocity V.

So what do you think people mean?

I know.  Its a sterile argument about what "deflation" means.  And I'm in the "Don't care" camp.

If you really want to pursue this, settle down for a long thread as it will not stop.  You will have the same conversation again and again and because its mainly semantics, you will never change anyone's mind.

That's not what people mean by Bitcoin being deflationary. And again, it's also not unexpected.

I know.  And Bitcoin at some point after 2140 will be a diminishing resource in that coins will be getting lost all the time, no new coins will be made so prices of goods and services will appear to fall.

Between now and then, you and I will die.  I'm really not losing sleep over it.

Wikipedia:

"In economics, deflation is a decrease in the general price level of goods and services"

I won't argue because I don't debate semantics.  We can spent forever arguing over what is and is not "deflation" and all we generate is heat not light.

That seems to be in the eye of the beholder. You are short on argument in your post I did notice that.

I think the Fisher equation can help explain why bitcoin isn't deflationary.

Haven't you just made a thread with the exact same theme?

https://bitcointalksearch.org/topic/oh-please-bitcoin-is-not-deflationary-353242

And had your ass handed to you because you don't know what deflation is?

you're basically saying that people will not be forced to buy what they don't need or risk losing value as is currently the case with inflationary currency.

that's not too bad.

those who want to buy things they don't need with excess bitcoins will do so because for them the value of the item they want outweighs the current value of the bitcoin they sell, even if the bitcoin will be worth more tomorrow. Those who keep the bitcoin do not want anything enough to give up value in terms of bitcoin for it, and they're happy with the savings they have.

seems fine to me.

Just because there is a fixed supply of bitcoin, that does not mean prices will have to keep going down.

No price can consistently and predictably move more than 'the' risk free rate of return, simply because that would provide a risk free profit that the market would adjust for. Bitcoin worth more in the future? I buy now and keep buying until the expectation of a further price rise is gone. Lowering today's prices of goods in terms of bitcoin and raising future ones in the process. The coins I bought I will spend tomorrow.

The Fisher equation isn't bad in showing what is happening. MV=PQ, the supply of Money times its Velocity equals the Price times the Quantity of goods. We know M is fixed and Q is growing constantly. When we wrongly assume V to be a constant (as is often instructed) then the Price level would have to accommodate for the increase in quantity Q by going down. Deflation as some say.

But as I have shown, P can't move predictably without affecting people's decisions on postponing to spend. A predictable price drop tomorrow will cause less coins chasing after goods today (we are hoarding) and more coins thrown around tomorrow (we will spend). What happens is that today's Price level will lower and tomorrows Price level will go up, equalizing the price difference to within limits of the risk free rate where it can persist.

This effect of hoarding is exactly what Velocity of money means to say. Because of the fixed supply of coins and the growing economy, we can expect Bitcoins to be hoarded. The velocity of bitcoin is lower now than it will be tomorrow. The price level on the other hand will be stable within bounds. (Not keeping into account other demand fluctuations)

The problem I have with the Fisher equation is that it seems to describe money using independent variables. As you can see P and V are linked, so you cannot determine the change in a one of these two variables when you know the change in the other. There will be second order effects. In this case, a change in P will lead to a change in V now, which in return will reduce the change in P...