Topic: Bitcoin's first major deflation event, and its consequences - page 6. (Read 14121 times)

skyrocketing demand + limited supply = deflation. this is a textbook definition. this deflation is recognizable as a rate of change of price similar to price bubbles in the past, but fundamentally different (selloffs don't cause panics and are almost immediately absorbed by buying pressure, for one).

if you're trying to make a snide point about how you don't believe the present price action is due to deflation at all, then i'd appreciate that more open discussion. i think you know what i mean by price behavior: $5 -- > $25 in about 10 months.


if you didn't care at all about what other bitcoin users are doing you wouldn't be on bitcointalk discussing the economics of the system. i realize i hit a nerve when i mentioned deflationary spiral, but i'm seriously just trying to engage you guys in discussion here...

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realizing there are wayyy too many responses id like to make to quote everyone... i hope this is followable.
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gmg -- that actually does make sense because currency refers to money velocity. it is a vacuous truth, in a way.

solex -- stores of value and units of account can be conflated but are also very different concepts.

nagato -- gold doesn't have much of a support economy. it's difficult to purchase goods for gold. this is exactly the point, and why it is a good example of a medium that has shifted more towards store-of-value and less towards currency. do we want our bitcoins in vaults or do we want our bitcoins in a marketplace? also, if a single wall street banker is behind this (which unless he has a google search bot he most certainly isn't) then we are in sorry shape indeed. exploding demand + limited supply = significant deflation.

phatsphere -- there is at least one pure strategy nash, that is hoard. there are also many mixed strategies. this is true of many games but that is beyond the scope of this discussion.

lethn -- this is neither faulty mathematics nor economics. you're simplifying my argument to "EVRYONE HOARDZ FOREVER LAWLZ" but massive deflation even in the short term could set us up for a massive 'long squeeze'.

hazek -- this is not sophistry and please discuss this with me in a non-condescending way. the key here is that spending coins and selling them back for fiat produce two very different effects on the market.

asdf -- no systemic catastrophic failure, just perhaps a bunch of long squeezes. but your systems analysis is almost besides the point. how functional will bitcoin be as a currency if its growth is marked with such volatility so long after its widespread adoption? your step in the chain "economy contracts because there is no commerce so price goes down" reads a lot more tame than it would be -- not a gradual contraction but rather an extreme price correction. edited multiple times

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TL;DR

i'm sorry the words deflationary spiral left a bad taste in your collective mouth. i actually come from an economically and mathematically informed background and would like to continue to hear your thoughts. if you guys don't think that the price behavior in the last 10 months is any cause for alarm, may i ask you why?

if you are holding significant amounts of bitcoins, please keep in mind that the market tends to minimize profits. the mechanism i'm presenting here is an eventual long squeeze.

if you don't care about what others do with their bitcoins, that is okay. but what others do with their bitcoins affects the value of your own and it might be wise to keep that in mind.

if you think that keynesian economics is merely an excuse for the powers that be to abuse the money supply, i am in full agreeance. but that belief in itself shouldn't be an excuse to develop an allergy to critiques of the Austrian school of economics.

+1 btw people need to eat

There are many currencies, even BTC is deflative by nature, some other inflative currency will work the opposite way, and act as a reference

I couldn't have said it better myself.

"the economy will crash because it's growing too much!"

Price of bitcoin goes up because of real economic growth -> no one spends bitcoins because they'll be worth more. -> economy contracts because there is no commerce so price goes down. -> people spend their bitcoins because they'll be worth less -> [back to start]

This illustrates a control system with a negative feedback loop. This is inherently stable (control systems theory).

Deflationary spiral argument is complete bullshit invented to justify printing money to serve political ends. Deal with it.

Boy am I glad that nothing can be done even if it were. 


As for your sophistry.. I just love Bitcoin and I also love my bitcoins, but unfortunately I can't eat them, I can't wear them and I can use them as clothes so eventually I will be forced to spend, no matter what game theory says is the smart move, I can survive holding bitcoins and so I will have to spend them. And that right there completely obliterates your delusional theory.


Btw I'd also challenge your assertions that we haven't had any good news.. We had plenty of good news: from wordpress announcement, to bitpay VC announcement, to their customer adoption announcement, to bitcoin-central announcement, to coinbase announcement, to satoshidice announcement, ect ect ect

We had immense progress and a huge amount of good news lately and you better believe we also had a huge increase in user base as evidenced by the volume coinbase is now reaching monthly or the records blockchain.info/mywallet is breaking..

Many times I asked myself:

How come this Satoshi guy invented such a stupid game that reward people with 50 coin for wasting some electricity do hash calculation and there are so many people become adicted to it?

Then after I discovered that FED are playing an even more stupid game called open market operation and all of the bankers are still adicted to it, I realized that Satoshi is a genius  

No apology needed. This is a true dilemma with no immediate solution, I share your concerns.

The phenomenon of deflation in Austrian economics is a an automatic market managed correction and this is true  and fitting  solution to mis-allocated resources responsible for economic growth but wrongly used to argue the point you bring up.

The phenomenon is actually the "paradox of thrift" a Keynesian idea.

2 possible solutions (not advice but a personal opinion):

1) adjust the adoption curve to mimic that of gold (Bitcoin 2.0)
https://bitcointalksearch.org/topic/m.1217724

Or

2) adjust your participation to fit the Bitcoin economic model.
https://bitcointalksearch.org/topic/when-are-you-going-to-cash-out-141815

I am still very interested in understand how this will unfold
so please keep brainstorming.

Thanks for the concern.

Here's the problem with the 'hoarding' naysayers logic and it's another case of ignoring basic economics and mathematics all over again, in order for these 'hoarders' to make a profit from 'hoarding' Bitcoins they have to sell them otherwise all that happens is they have a bunch of worthless coins as everyone else stops playing along with their game and doesn't buy any of them. Adding to that people bitching about people who stash away Bitcoins are forgetting that you can break up Bitcoins into eight decimals as well so even if someone did somehow get there hands on several million Bitcoins and kept them from everyone ( which is extremely unlikely ) everyone else in theory could still trade with a few hundred 'full' Bitcoins in the market.

So enough with this bullshit logic, enough with ignoring mathematics and stop spamming topics about it, as for the comments about gold being a store of value? LOL! Gold and Silver were regularly used as an actual currency for hundreds if not thousands of years the only reason it has stopped recently is because banks have found it far more convenient to just print paper money and keep the Gold and Silver for themselves no one was the wiser until recently. Paper money is a fucking con, it isn't real, they were originally used as receipts for gold and silver, the real money was stolen a long time ago and digital currencies are just enabling us to take it back, with your questions about which sector is growing I suspect unless people volunteer the information to us we probably won't ever discover which sectors are growing because of course Bitcoin is mostly anonymous.

Sorry if the tone is a bit ranty but as people have pointed out there have been several topics about this and a lot of the time it's someone who doesn't understand the subject and writes bullshit as if it's a fact. >_<

what gmg is actually trying to say, is that your "nash equilibrium" assumption is wrong. holding or spending bitcoins is a mixed strategy. therefore, your feedback loop and whatnot assumptions are wrong and all conclusions.

What support economy does gold have? Yet it has risen continuously(in dollar terms only) for 12 years.

Unlike inflation, deflation of a currency cannot continue indefinitely.
If 1 bitcoin could buy the entire planet, i or anyone for that matter would cash out long before this point.

Did we expect the price to quadruple? If you've been hanging around these forums, many here are expecting a 10000x increase.

I was initially spooked by the suddenness of this rally without any news event until i thought about it logically, a single wallstreet banker alone could drive this rally with his pocket change, let alone a hedgefund managing billions.

Eventually there will come a price(much higher than today) when volatility will be akin to that of the major currencies.

Only products can buy products. The whole point of money is a medium of exchange between products (labor, food, TVs). Money has to be a store of value in order to be used later to buy a product. Currency is a structured form of money as it also needs to be a unit of account.

If the value of bitcoin kept falling it would be as popular as the Zimbabwean dollar, merchants would reject it.

Let's turn this argument upside down for a moment: if BTC price was doing nothing but falling for a month, people would be encouraged to spend their coins because they know they will be worth less in the future, so the nash equilibrium would be for everyone to spend. this means incredible amounts of investments and widespread commerce. in other words, bitcoin turns into fiat as we know it today. Not a store of value at all, but a real currency.

Does this make any sense?

Unless they believe the singularity is coming. I wonder what Kurzweil's thoughts on Bitcoin are.

+1000.

Howard Hughes type scrooges are rare in this world because most people just want to have nice things. Hoarding does not go on forever because people know they'll get old and die.


Same goes for me.

What is this first major deflationary event in the bitcoin economy that you're watching?
What kind of price behaviour is it, that will or will not change the perception of bitcoin either way regarding the currency vs. store-of-value dichotomy?

I really don't get it, I don't see any unusual price behaviour, nor deflationary event.


And for most of the coins not being moved, why would I care? All I care about is that it's possible for me to move them around, superfast, supereasy, supercheap.
I just don't care about what other people do with their coins, hoarding, spending, burning, it's their choice, not mine.

This price rise is good for bitcoin because merchant websites will see it is a strong currency and will be more tempted to accept it for goods. The hoarding/saving/investing is also healthy. The market needs to be trusted. Everyone will spend some of their hoarded bitcoins at some point in the future.

I don't believe anyone will horde to the point they'll perish.  Eventually, you'll come up with a nice sum of coin and will want to put it to use; after all, why have wealth if it goes unused?

People can use Bitcoin as a store of value AND as a payment network at the same time.  If I want to pay with Bitcoin, I will buy Bitcoin with fiat and pay, without moving my Bitcoin investment.

Only 21 million ever.  We're still in price discovery mode and will be for quite some time.  We will either find some price well north of where we are now, or will be displaced by something better.  At that point maybe we can talk about inflationary or deflationary pressures.  Nobody knows about bitcoin now, and until most people have at least heard of it we can only guess what its value is.

As for failing to spend because price is rising, I don't find that to be an issue.  In fact, I spend more after a price rise, even if I expect it to continue.  I could be wrong about it continuing and then I would lose out.  If you have trouble letting go of bitcoins for goods, services, or other investments, maybe you should still be accumulating?  At some point you will feel you have enough bitcoins and be willing to spend some.