Does halving really create deflation?

Betwrong

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Quote from: Twentyonepaylots on December 17, 2019, 08:54:29 AM

Quote from: Betwrong on December 17, 2019, 06:08:42 AM

After reading through this thread I'm going to sum up my conclusions.

1. No, halving does not create deflation. We'll start getting a real deflation only when the last coin is mined. As @NeuroticFish rightly pointed out, we can say that in our case halving is a decrease of inflation.

yes we haven't experienced a deflationary halving yet with the previous halving occurred but as we slowly coming to the final halving the market will start to deflate.

If you mean 2140, I think it's too far away from us to think about it. But what's interesting is that we don't know for sure how many coins are lost every year, so, theoretically, it's possible that we have already entered the deflationary phase. According to Chainalysis, between 17 and 23 percent of all BTC is already lost irrevocably. Who knows how many BTC will be lost during the year after the next halving, and whether that amount will not be greater than what will be mined during the same period of time?

I mean it's not that hard to calculate how many BTC will be mined from May 2020 to May 2021.

We have around 52,560 blocks per year, so

52,560 x 6.25 BTC = 328,500 BTC

It's only around 1.6%, so it's possible that over that amount will be lost during the same time.

iv4n

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Quote from: TastyChillySauce00 on December 17, 2019, 10:47:43 AM

Quote from: iv4n on December 17, 2019, 04:36:17 AM

You don't have connections with deflation, that's for sure, on other side bitcoin halving will not create deflation. In economic sense deflation is a reduction in money supply, halving is reducing block rewards for miners, but in same time we expect price of bitcoin to grow, when that happens miners will get similar rewards in value. Bitcoin have many decimals and that is a game changer for the economy, we can apply many economic laws in crypto market, but we cant apply them all.

The price grows due to the halving of block reward is what people really want but the reality usually different. The price could just not move at all because the market is not really influenced by the blockchain reward which miners received. So, you just don't expect that thing to happen. Although, by halving the reward it will make people become more aware of how much their coin actually worth.

How can you say that reality is different, when after every halving we have higher price.

Market is influenced in many ways by many factors, from all of them two are very important ones, its supply and demand, halving is changing the supply, which can affect the price in long run.

asus09

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Halving bitcoin on May next year and take about five months later but bitcoin and altcoin have been with lower price today, I think still long time for bitcoin halving day and have chance for bitcoin and altcoin back with higher price again, just wait and see what will happen with bitcoin price later on halving day, have higher price or not because we can't prediction with bitcoin price.

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Think about it this way, if there is scarcity of bitcoin which creates some sort of demand for it to stay same but the supply gets lower and lower both because less mined bitcoins but also more people hoarding and losing their bitcoins, what do you think would happen? How could people think that less bitcoins can never mean deflation, of course it does.

However, one true reality that always looms over our heads is that, will bitcoin one day actually die? We have talked about how awesome bitcoin is and how it will never die but we are forgetting that technology is ever improving and market doesn't care about ideology it cares about profits. So, if bitcoin stays popular then for sure it will definitely get more expensive with halving but for how long? We don't know.

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Quote from: iv4n on December 17, 2019, 04:36:17 AM

You don't have connections with deflation, that's for sure, on other side bitcoin halving will not create deflation. In economic sense deflation is a reduction in money supply, halving is reducing block rewards for miners, but in same time we expect price of bitcoin to grow, when that happens miners will get similar rewards in value. Bitcoin have many decimals and that is a game changer for the economy, we can apply many economic laws in crypto market, but we cant apply them all.

The price grows due to the halving of block reward is what people really want but the reality usually different. The price could just not move at all because the market is not really influenced by the blockchain reward which miners received. So, you just don't expect that thing to happen. Although, by halving the reward it will make people become more aware of how much their coin actually worth.

Twentyonepaylots

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Quote from: Betwrong on December 17, 2019, 06:08:42 AM

After reading through this thread I'm going to sum up my conclusions.

1. No, halving does not create deflation. We'll start getting a real deflation only when the last coin is mined. As @NeuroticFish rightly pointed out, we can say that in our case halving is a decrease of inflation.

yes we haven't experienced a deflationary halving yet with the previous halving occurred but as we slowly coming to the final halving the market will start to deflate.

Quote from: Betwrong on December 17, 2019, 06:08:42 AM

2. The price of BTC shouldn't necessarily rise after halving, because demand is a big factor, and it's unpredictable.

Well then the halving will surely bring back the memories of the past and that will generate a high demand after that although we are still not sure what the incoming halving will actually bring to us.

Quote from: Betwrong on December 17, 2019, 06:08:42 AM

3. We can expect the price rising, because it is pretty unlikely that the demand will drop to the extent so that it will counterbalance the vanishing of 900 BTC from the market daily.

There's a high chance that it will be going to happen again.

Betwrong

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After reading through this thread I'm going to sum up my conclusions.

1. No, halving does not create deflation. We'll start getting a real deflation only when the last coin is mined. As @NeuroticFish rightly pointed out, we can say that in our case halving is a decrease of inflation.

2. The price of BTC shouldn't necessarily rise after halving, because demand is a big factor, and it's unpredictable.

3. We can expect the price rising, because it is pretty unlikely that the demand will drop to the extent so that it will counterbalance the vanishing of 900 BTC from the market daily.

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Quote from: mk4 on November 27, 2019, 06:01:06 AM

In the end, it's always supply and demand.

Yes, that's true! The nature of the trading market always needs the existence of supply and demand, lack of either of these factors; it will create an imbalance and cause market volatility.

Quote from: dragon695 on November 27, 2019, 05:04:12 AM

So for Bitcoin, why is there a deflation? Although I know that miners will find it harder to mine bitcoins after every Halving event, the value of our goods stays the same and is based on fiat money. Bitcoin's price is still being manipulated and it is not necessarily a strong growth after halving. or the best example is Litecoin. after halving, its price is halved instead of rising higher.

The value of a cryptocurrency depends a lot on its community. From the beginning, almost the "newbie" knew the concepts of "Altcoin" and "Cryptocurrency" were all through Bitcoin. So from the start, Bitcoin had a much better liquidity market than Litecoin - one clone crypto of Bitcoin. Litecoin lost its value in half after Halving just because its community was too small, so it was not enough to attract investors to hold it and push the price. Or at least keep its value.
IMO, I see the Litecoin community even smaller than Ethereum or Ripple at this time.

iv4n

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Quote from: carlzec on December 16, 2019, 06:09:03 PM

Let's look at a straight sense. A balance between limited bitcoin and too many people is sought. In this case, the price will increase if there is demand for bitcoin. Miners system is the main backbone. The system works with them. Now I can not say that I do not have a connection with deflation.

You don't have connections with deflation, that's for sure, on other side bitcoin halving will not create deflation. In economic sense deflation is a reduction in money supply, halving is reducing block rewards for miners, but in same time we expect price of bitcoin to grow, when that happens miners will get similar rewards in value. Bitcoin have many decimals and that is a game changer for the economy, we can apply many economic laws in crypto market, but we cant apply them all.

carlzec

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Let's look at a straight sense. A balance between limited bitcoin and too many people is sought. In this case, the price will increase if there is demand for bitcoin. Miners system is the main backbone. The system works with them. Now I can not say that I do not have a connection with deflation.

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Quote from: silversurfer1958 on December 16, 2019, 08:38:58 AM

I think not and even make the value of the business become lower with time of development. We talked about Bitcoin a lot, let's look back at the Litecoin halving event, it's no longer a miracle that makes the price of any coin grow. This shows that the crypto market can turn around anytime.
For the Bitcoin halving event in 2020, if capitalization is to land on all the alts then the Bitcoin halving event will be of no value.

Litecoin is just a copy cat of bitcoin. So the price movement after the halving is normal to me because the people loses their hype and the market settles down on the right price for each altcoin. When the bitcoin halving is done, the price of bitcoin will go up because the miners will stop if the price goes lower than they expected because it is where they base if they are still earning or not. It all depends on the profitability of the miners and also the demand in the market that will make halving produce a deflation or inflation.

silversurfer1958

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I think not and even make the value of the business become lower with time of development. We talked about Bitcoin a lot, let's look back at the Litecoin halving event, it's no longer a miracle that makes the price of any coin grow. This shows that the crypto market can turn around anytime.
For the Bitcoin halving event in 2020, if capitalization is to land on all the alts then the Bitcoin halving event will be of no value.

sovie

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Bitcoin as I know has controlled inflation i.e. we will have 21 million coins that will be slowly generted until the last bitcoin will be generated in 2140. With coin halving we have less number of coins that will be coming into the available pool of bitcoin. If there will be more people that are looking to buy bitcoin we will surely have increase in price.

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I dont think it counts as deflation until we have less of them available. That can occur naturally as there is some natural wastage to BTC from idle or lost accounts but its only slight. The reduction is new BTC produced and available to the market does not to me qualify as deflation, its actually lower inflation rate but its still an expansion all the same.
We believe it has a deflationary effect because the presumption is one of growth for BTC and with more addresses used then the demand for BTC rises as this supply declines but its not deflation to me.

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Austrian Economics inflation relates to money inflation

I believe they refer to Victorian definitions circa the monetary standards of that time, so that would be by reference to the monetary base in total not circulated. We missed one important modern definer of inflation and thats the FED and they will adjust prices to account for technology and advancements. Its possible they might write off the same car costing 5k then 10k some years later as no inflation, their account is the car spec improved and its utility hence price to performance is not moved nor any inflation should be noted. This is known as Hedonics and a link to Austrian econ website - https://mises.org/library/illusions-hedonics

Sahyadri

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Bitcoin and deflation is weirdly related. Deflation means that the set amount of money can buy you more goods than before. In case of bitcoin the supply doesnt really define the deflationary or inflationary property of bitcoin. It is more dependent upon the demand as there is no set cap upon the valuation. Bitcoin can hold any value which is more dependent upon the demand. If you notice, leaving a few instances, bitcoin value is growing year after year. The halving wont create much of a difference as you are increasing the supply anyway. How much the demand is increasing will make a difference.

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The explanation of fillippone is of a masterful order, the concepts of Inflation and Deflation can cause some kind of confusion regarding the particular explanation of each person, however a great example of Inflation is what happens in Venezuela, inflation is so high , that the indexes no longer calculate them.

The effect of Bitcoin Halving by nature should help the price, because the reward is reduced, however, it does not mean that the price will increase instantly, something similar is with the "lost" Bitcoins that some have lost their private keys, the effect in bitcoin market can occur later in some moment of the time, but is secure..

Actually the post with the example of the 1 liter of milk and that of the pizzas, in a very simple like fillippone explains it.

fillippone

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Quote from: The Sceptical Chymist on December 15, 2019, 02:47:21 PM

Quote from: Getmon on November 27, 2019, 05:15:45 AM

Deflation is the opposite of inflation.

The fiat currency is deflating because it is losing value over time

Those two statements don't jibe. When a currency is inflating, it's losing value and goods and services cost more as a result. Bitcoin is supposedly a deflationary currency because of its finite supply, as opposed to the USD as an example, which has a nearly unlimited supply. Inflation, as I learned in economics courses, is too much money chasing too few goods and services. That can't happen with bitcoin.

But I have no idea how the halvenings affect the deflationary aspect of bitcoin. Coins are just being generated at a slower rate, which will make absolutely no difference once all the coins are mined (if bitcoin survives that long). Coin supply is still increasing toward its limit even with the mining rewards going down. It's an interesting question, but I can't say I have a good answer for it. Nor have I read any answers here that would clarify it for me.

There is a lot of misunderstanding about the terms inflation.

For Keynesian Economics inflation relates to price inflation: i.e. purchasing power of money
For Austrian Economics inflation relates to money inflation
For many Bitcointalk users inflation refers to price level of the coins, hence "deflation" deferred when price of Bitcoin expressed in USD goes south, or the "fiat deflation" when USD loses value over time (when actually there is inflation, or the opposite).
I already ranted about this, a few post above.
I think it is a lost battle.

Quote from: jonatha28 on December 15, 2019, 03:52:25 PM

As far as I know halvenings affect bitcoin in 2 directions:
1st - value of Btc is rising (because it is harder to get) and the price of it goes up obviously
2nd - price of it falls because more miners come to equalize supply and demand

First effect is analysed in the Stock to flow models. Please red here: Stock To Flow Model: Modeling Bitcoin's Value with Scarcity
Second effect is a nonsense, to me at least. Would you pls clarify?

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Quote from: The Sceptical Chymist on December 15, 2019, 02:47:21 PM

Quote from: Getmon on November 27, 2019, 05:15:45 AM

Deflation is the opposite of inflation.

The fiat currency is deflating because it is losing value over time

Those two statements don't jibe. When a currency is inflating, it's losing value and goods and services cost more as a result. Bitcoin is supposedly a deflationary currency because of its finite supply, as opposed to the USD as an example, which has a nearly unlimited supply. Inflation, as I learned in economics courses, is too much money chasing too few goods and services. That can't happen with bitcoin.

But I have no idea how the halvenings affect the deflationary aspect of bitcoin. Coins are just being generated at a slower rate, which will make absolutely no difference once all the coins are mined (if bitcoin survives that long). Coin supply is still increasing toward its limit even with the mining rewards going down. It's an interesting question, but I can't say I have a good answer for it. Nor have I read any answers here that would clarify it for me.

As far as I know halvenings affect bitcoin in 2 directions:
1st - value of Btc is rising (because it is harder to get) and the price of it goes up obviously
2nd - price of it falls because more miners come to equalize supply and demand
But I'm not totally sure

The Sceptical Chymist

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Quote from: Getmon on November 27, 2019, 05:15:45 AM

Deflation is the opposite of inflation.

The fiat currency is deflating because it is losing value over time

Those two statements don't jibe. When a currency is inflating, it's losing value and goods and services cost more as a result. Bitcoin is supposedly a deflationary currency because of its finite supply, as opposed to the USD as an example, which has a nearly unlimited supply. Inflation, as I learned in economics courses, is too much money chasing too few goods and services. That can't happen with bitcoin.

But I have no idea how the halvenings affect the deflationary aspect of bitcoin. Coins are just being generated at a slower rate, which will make absolutely no difference once all the coins are mined (if bitcoin survives that long). Coin supply is still increasing toward its limit even with the mining rewards going down. It's an interesting question, but I can't say I have a good answer for it. Nor have I read any answers here that would clarify it for me.

BitcoinTurk

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The half-life process will, of course, lead to an increase in price because the current production costs will not change, but the amount of Bitcoin that the miners will earn will be 50% less. For this reason, miners will sell at a higher price and will sell at a price level that will cover these costs and even make a profit. This will of course lead to deflation, but the main reason for the price increase here is the reduction of the miners' sales pressures. Nowadays, miners are constantly selling in order to transfer their earnings into cash quickly and to pay their current costs. These sales also create pressure and prevent price increases. Since the miners will have to sell at higher prices, the prices will rise rapidly and reach a new balance.

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