Topic: Help me understand this apparent contradiction between bitcoin and inflation - page 3. (Read 513 times)

If I would describe it in my terms, I will say it this way - When Inflation comes up, people find it hard to invest money and most of the times are left with no money as prices of their daily needs increases compared to the previous term, so this kind of affect any asset and it also affects Bitcoin. Less buyers, Less Demand, Supply keeps growing.

Bitcoin is deflationary as it has a capped amount of coins 21mil. Supply is limited to this amount. As demand increases it will push prices up because of this fixed supply - in the long term.

When interests rates rise and the price of commodities increase people and companies are discouraged from borrowing and generally the whole economy has less to spend. Thus people and institutions are less likely to spend money on high risk assets like Bitcoin driving down demand during this period of high interest rates. Thus price decreases.

But yes in the long-run a Bitcoin will increase in value - deflationary. Whereas other fiats will ‘lose’ their individual value over time - inflationary.

FED, central banks create inflation when they need to print money to have money flow in economy. Then they 'find' solutions to control inflation, it's a joke.

Bitcoin is inflationary too, you must know this fact first. It is not deflationary like many people believe it is.

Bitcoin will become deflationary after 2140 when all 21 million bitcoins in total supply will be mined all by miners and available in circulation. There are some contributors for its deflationary like people lost their bitcoins like losing private keys, can not spend because of dust UTXOs, lost to scam exchanges and sent to wrong addresses ...

Price goes up because value of Bitcoin goes up with time, with more adoption, more use cases, more utility, more legality.

 I am just an amateur, so I am not claiming special knowledge:

As far as I know the relation between Bitcoin price and interest rates is:

Lets assume you have 1 million USD and are looking for a return of 10 % per year, you have invested in shares, bonds and real estate, nothing fancy, no Bitcoin because you consider it too risky with prices going up and down.

Now the interest rates go down, means people can easily borrow more money and because of more demand the prices are going up - means more inflation. The lower interest rate means some of your investments make a lower return. In total you maybe make only 8% per year now.

In order to improve your return you now buy Bitcoin because there is a chance to make more profit, and you are prepared to accept a higher risk in regards to Bitcoin.  So mor edemand for Bitcoin- Bitcoin prices go up....

After some time with inflation the interest rates will be set higher, to make it harder to borrow money, and less money is chasing the same amount of good, means the inflation rate goes down. But the higher interest rate means also you can now make the target 10% return on your 1 million, without holding any #risky#  Bitcoins.

So demand for Bitcoins goes down, and therefore the Bitcoin price goes down because of lower demand.

To sum it up: Inflation / lower interest rates  drive Bitcoin up     Higher interest rates drive Bitcoin down....


But there are of course other factors going into the Bitcoin price...... so this is just about inflation / interest rates.....

In Europe the target inflation rate is 2 %, so over many years inflation will add up of course....

Theoretically, Bitcoin goes up when there is inflation and people conceive it as a hedge. However, this is not always the case, at least not in the short term, because there are people who view it as a luxury asset. And when inflation hits the pocket, and these people need money, then the first to withdraw is their luxuries.

That being said, on the long term it has acted as more than a hedge against inflation. Strictly speaking, though, that does not count as evidence of a long-term inflation hedge either. It does have good chances to work, though, I believe.

Ideally in the minds of many, that should be the case but since we are not living in a perfect and flawless world, there are things that are subject to realities in the market and that also includes Bitcoin since it is traded in an open market like we have right now and to which anyone can freely participate in the process. Now, the idea that Bitcoin is a hedge inflation is coming from the fact that it has a limited - a fixed number of coins as against the limitless printing of fiat money as to be decided by central bankers and the government. As we have seen in the history of Bitcoin, I think it is playing that part in most of the time though it does not mean the price of BTC would not go down as, again, it is subject to the market forces moving around.

This most times are biased based on your location, but when it come to global economy what makes Bitcoin price some times falls along side with the inflation is likely as a result of monetary policies taken by the federal reserve which in turn tightens the whole situation for investors and as such Bitcoin price may not or may fall only for some time (very short period) before it then makes a price correction.

Let's say, it's because after some short period of tight monetary policies (regulations) the Bitcoin price tends to correct itself against the inflation and with investors finding solution around the situations the market will begin to set forward with it's activities and with that little price fall some investors has a taken advantage of it through buying the dips and the demand for Bitcoin increases over time so the price sky rockets for a long period.

Infact as we know Bitcoin is volatile, so after some depreciation what next is appreciation. so soon after the inflation must have cost a little price fall the next thing is price increase and it tends to last for a long time.

If there is inflation, the price of goods and services will increase as the fiat of the nation decline in price. Assuming bitcoin is stagnant and not moving up or down in price (but which is not possible), the price of bitcoin will rise against the specified fiat. But bitcoin is a volatile asset which can make this not known to most people.

You always hear the pundits saying that the rise of inflation suppresses the price of risk assets such as stocks and bitcoin, as interest rates are pushed up in an attempt to control inflation.

But if bitcoin is a hedge against inflation then shouldn't the bitcoin price rise when inflation goes up instead of going down?
I'm guessing the answer would be that inflation causes bitcoin price to go down in the short term, but in the long term causes it to go up? If so then why?