Topic: Bitcoin too valuable to spend - page 3. (Read 7094 times)

A divisible and fungible asset like a currency can never be "too valuable to spend", since by definition you get the value of the amount you spend. By virtue of comparative advantage, from your point of view it's at most as valuable as the things you decide to buy.

What interferes with the spend decision of the holders are those pesky deflationary expectations everybody rants about, and that somehow "don't apply" to bitcoin. If an asset is expected to rise, people will hoard it given the choice. It's only human to aim for realizing the gains of your most productive assets. You will always slaughter the old cow, not the gestating one.

For a non-productive asset like bitcoin the expectations are purely speculative (if they were technical the efficient market would have corrected the price up). So the correct title of the thread is Bitcoin too hyped to spend: captures both the deflationary aspect and the speculative mania aspect.

Gresham's law does not apply because the government does not force a certain $/BTC parity (or anybody else for that matter).



I believe the time scale is to small to actually see a direct correlation between the ~0% M1 increase in 2006-2007 and the inflation in those years. Just like deflationary expectations, there are inflationary expectations. People expect to have their paychecks increased yearly, and this eventually goes into the price of goods and services, regardless if no more currency was injected into the market. I think our old friend Milton would say that inflation is always a monetary phenomenon and if printing stops, so will inflation, eventually. So the 2007 inflation was made possible by earlier printing.

+1!!

Doesn't this response completely answer the original question?

To sum up this thread, people are using Dollars, backed by Bitcoin, choosing to do that instead of using the Dollar backed by Gold.   However, we all should just switch to Bitcoins backed by Gold, hoard the Bitcoin, spend the Gold, the USD is now completely useless? 

Actually, isn't that what a lot of people want out of Bitcoin.  I prefer having many forms of currency lol.  I am fucking around, but I see some interesting points here and will now just go into lurk mode, the way the daily/hourly/by the minute (multiple) exchanges of Bitcoin works makes old school way of thinking on currency a little different imo, so older theories and maybe even things that were known as true are adjusting.

Eventually speculation will drive the price to the "proper" value, and then the value won't change terribly much (or at least there will be no expectation that it goes up that much), then people will spend more.  Assuming there's anything worth buying with it.

Except that it won't go up in value.

His whole comment is speculation, trying to leverage up the value of Bitcoin while it's true consumer value is 1$ at most.

People will be reluctant to spend bitcoin while it is rapidly appreciating in value.  It's a problem.

To counter this, merchants might offer a 5% or 10% discount for payment in BTC (because hey, they prefer having bitcoin too).

Currently, merchants pay 4% more when their customers use credit cards.  They would like to offer a discount for payment in cash, but they can't, because it is against the terms and conditions of the credit card companies.

There are no lawyers and no weasel rules or restrictions with bitcoin, so they're free to do the Win-Win thing with their customers.  If BTC catches on in a big way, and both merchants and customers give up on credit card companies completely, well, good riddance.

Earlier posters are right.  The free market should set the USD/BTC exchange rate precisely at the point where it makes equal sense to spend both.  If BTC were going up in value and the dollar down, for sure, then BTC's current price would go up to reflect that.

However...  we can still talk about differences in the scenarios in which one or the other currency has a guaranteed government monopoly.  Then, their adoption leads to different behavior.

IF there is only one form of money and it is frequently, artificially, and arbitrarily inflated by a governing body that looks out only for itself, THEN people will spend that money faster.  If bitcoins were the national currency and USD were like bitcoin, scrounging around in a few tiny corners of the economy looking for shelter from banks and senators, then people would save more and spend less.

If you are not at the point of ambivalence about which of your currencies to spend them you need to buy more of the one you find too precious to spend. It makes no sense to claim that you value an extra bitcoin way more than the equivalent amount of dollars, but not trade the dollars for coins.

+1!!

I think the flip side of this arguments (Gresham's law btw) is that maybe some people will simply decide to convert whatever other undesirable currencies they receive into bitcoin (or other assets they consider valuable) as soon as they receive them.  In that circumstance, they won't have any undesirable currency to spend unless they go to the hassle of converting it back (and if merchants accept bitcoin, why would they do that?).

Ive tried to write an answer to this but it always ends up being tl;dr.

Short answer is, why is this the case for gold backed digital currencies, and why will it be different for bitcoin?

the thread was called "interest rates possible?" or something like it

That isn't really an answer. Am I to assume you're just pulling things out of thin air? If you already discussed this, perhaps you could provide a link to the previous discussion.

how does one "create" a growing M3 while M1 was basically constant for years, just like the 21 million coins whould be constant?
look up the definitions of money, fractional reserve banking, money multiplier.
as I've said, I don't want to repeat that discussion.

So exactly how does one create more than 21 million bitcoins?

It's really surreal to have this argument among a bunch of free-market advocates.

In a free market, the price adjusts to balance supply and demand, doesn't it?  Invisible hand, Adam Smith, 'cooperation not coercion', etc.?

So if the bitcoin I bought for $15 is perceived to be more valuable than $15, wouldn't the exchange rate automatically rise to equalize the value?

Let's say Amazon accepts both BTC and USD, and the price of 'The Wealth of Nations' is quoted as 1 BTC or 15 USD.  If people perceive BTC to be more valuable, they would spend their 'trash fiat' first and keep their BTC.

But in a free market, wouldn't the exchange rate then move so that the price of the book is 0.8 BTC, or 0.4 BTC, or 0.2 BTC until the customer was indifferent about which currency to use?

If you say that there is always a preference to hold BTC and not spend it regardless of the exchange rate, aren't you arguing that the free market doesn't work?

IF bitcoin is widely used as currency, even for bank accounts, I doubt there would be deflation.

I don't wanna go into a whole discussion about money supply and money creation again, but a constant monetary base ( = the 21 million coins) doesn't mean there is no (monetary) inflation.

for comparison, USD money supplies:


if you look at M1 (which is an even wider defined money supply than monetary base) up until 2008 when everything went to hell in a handbasket, you can see that the money supply of USD central bank money was constant, yet, there was PLENTY of inflation, price and monetary.

same thing can happen in a bitcoin economy.

You're right, math does solve a lot of problems

There will always be some items or services more valuable than bitcoins. Let's imagine. The HD6990 is valuable item today, so is the Bitcoin. The 6990 will lose it's value dramatically in next few years, the Bitcoin will gain the value slowly. You assume that none will trade the long-term valuable bitcoins for short-term HD6990. But this is false. If you get very lucky deal such as 4 BTC for HD6990, you will buy it today no matter what the price will be afterwards! You can do the job and earn additional bitcoins or whatever to get the 4 BTC on your account again. And You will have the 6990 also!

The slow deflation of Bitcoin is not a flaw in any sense, it's additional bonus! If people want Bitcoins, they wil ltrade goods and services for it. Only value of goods and services will determine value of Bitcoins.

jesus. is there anything this argument doesn't solve?



has been done many times in history, just in the other direction.