Topic: Inflation and Deflation of Price and Money Supply - page 32. (Read 1424613 times)

"Why does the price of Bitcoin go up and down? The price of BTC goes up and down based on the exchange rate, or market price, which is set by buyers and sellers, or traders. They directly trade the Bitcoin currency with all sorts of other currency, and even some with gold; the most popular being the USD (US dollar). They set the price when executing orders to buy or sell. I will get into the actual reason of why the price fluctuates in the last section."

This answered the question that's been bugging me for a long time - I always wonder who sets the price and who decide the selling price of the btc.

Very informative thread. By reading all those posts I deeply understand the economics of Bitcoin. How the money supply inflation differs to the value of bitcoin.

In my own understanding, there's no effect of the money supply inflation in the value of bitcoin, thus the demand has the effect.

Simply as if there's a high supply in bitcoin the value will not change or it will decrease.

We'll see how the demand and supply influences the price after the news that Russia wants to open the market for BTC in 2018 (legalize it), as well as some countries are getting into it (like Australia). The demand may be higher, it should get the price higher. On the other side, it may be a good situation for people that speculate to realize income by selling some BTCs.

Money gets in due to speculation to pump and dump. Probably that is he main reason.
As you also mention, it is really interesting to predict where the price will go,... you probably also mean that it will increase right
It is not only me,
an expert in economics believe that there will be a chance that the trading of BTC will go quite big (almost) 10 % of total money trading,
in this case then your prediction is even higher,.... BTC may be 10 000 USD.

I am looking for your next analysis if the BTC go this high, I am just curios to know why and what next

It seems to me that the cause of this increase in speculative operations. Maybe some Soros decided to make good money on bitcoins. Now very strong expectations of growth in bitcoin prices and therefore all owners hold bitcoin creating a high demand for it. The miners cannot cope with the growing demand.

Mostly IP's amortization is counted in 5 years period. In this case it may be more, because is nearly 8 years. So 100/8 =12.5.

Why?
In accountancy it is assumed that Asset value looses it 100% value in a period of time since the start of initial investment. For example - as an assumption -  a car looses 12.5% its value every year, and after 8 years its book value is 0%. Real value may be more.

In BTC there is an assumption that every year this asset is refurbished or 'updated' so the value is not lost in a full amount. This algorithm would be very complex then. Also there is increase of 'stock' of this asset.

That is why it was made a simplification. One may use the 20% standard or use the value of % that is suitable.

The idea is to input the data of how many coins were produced in 2009 for how much (initial value year one), in 2010 etc..

How did you come up with 20% amortization rate?

I wonder how to calculate the 'book' value vs. trading value of 1 BTC.

Book value of BTC's shold be the sum of money put into their production since the start (as calculations made by the computers etc.) minus 20% amortization yearly. So this amount divided into BTC's should be 1 BTC book value. And then we could compare to the trading value (present).

Simplified example with non-real values:

Year 1 - used 20 cents for electricity to produce 1 BTC. Book value of 1 BTC = 20 cents.
Year 2 - used 21 cents for electricity to produce 0.9 BTC. Book value = [(0,8*1*20) + (1*0.9*21)] => 2BTC book value = 16 + 18,9 = 34,9 cents=> 1BTC = 17,45
Year 3 - used 25 cents for electricity to produce 0.5 BTC. Book value = [(0,6*1*20) + (0.8*0.9*21) + (1*0.5*25)]+  => 3BTC book value = 12+15,12+12,5 = 39,62=> 1BTC = 13,20
and so on.. (assuming not selling the BTC's, short period od production etc.).

Thesis:

no. 1. If the difficulty increases over some level, the book value will start to decrease so the disproportion over book and trading value will be increasing, that is the moment, when BTC value should be lower
no. 2. If we see the BTC as gold, this difficulty increases astronomically the value due to exhausting resources.

Also I wonder how it refers to the general market cap.

What do you think?

Hey guys, I was kind of curious about the value of the bitcoin. I understand the basics of economics and how the price of money is determined by the supply and demand for it, but I am not completely sure why the price of bitcoins continues to rise. Is it because the demand of bitcoins is continually increasing at a staggering rate? Or perhaps people are trading their bitcoins for other currencies faster than it can be mined, thus reducing the supply? Some clarification would be helpful.

Hi,

There seems like there has been a bit of confusion regarding bitcoin's deflationary nature and the problems that brings, I don't think remaining in denial is going to help us develop something really great here. I did however see some posts explaining that problem in depth to the naysayers quite well and TE (the economist) has a great article about the topic.

So as opposed to reiterating the same points brought up by others I'd like to discuss the topic of the negative externalities facing a deflationary currency. To be fair I don't expect there to be the driving issues facing BTC and crypto in general for quite some time, these are issues that currencies face.

• Discourages spending and investment

The fact that there is an expected return in deflationary currencies means that the return on investments and spending are always evaluated proportionally relative to the return it could have been generating passively. The implications of that are obviously huge and without solving that issue we will never really have a replacement for any of the currencies around.

An inflation must happen and can not be avoided, depending on market movements, must be smart in making decisions

True, but they can print money till they run out of paper and ink.

That's a great post.
That kind of writing helps us to know about real economics. If we can gather knowledge about money's characteristics in market then we would be more capable to invest or trade in real or virtual market.
Thanks for the post.

I'm not sure that fast movement of bitcoin value and price is such a good thing. When you trade with altcoins and their price goes down due to fast growth of bitcoin price, you can loose a lot of money at railway speed.

Inflation occurs when the prices of goods and services rise. Deflation occurs when prices decrease. Balancing the two is delicate, and an economy can quickly swing from one to the other. When goods and services are in such high demand that their availability drops, inflation ensues. Consumers will pay more for items they want, so manufacturers charge more.

Well.... It's not so hard to tell why Bitcoin becomes interesting in a time of deflation; When volks see that in the future they can buy more products with their current amount of fiat, they will save it. Nothing more than intertemporal exchange.Investing it in BTC becomes more interesting.

The more interesting discussion can be about the question whether primary liquidity will be transformed in secondary liquidity, and the narrow money will decrease, since we see Bitcoin as a currency but a lot of institutions don't.

Spot on. It cannot survive it.

This could be debatable depending on perspective. Certainly extreme inflation is a bad thing. However, one could argue that low (1% to 2%) inflation is acceptable and arguably a good thing. It spurs spending and investment, overall promoting economic activity. Value is higher now than it will be in the future so it causes one to not hold onto cash (or spend it). Which is exactly why the Fed has a 2% inflation target. Low inflation spurs spending, investment and economic activity. Economic theory would suggest that deflation just causes people to hoard "cash" and not spend since value will be higher in the future, so you forgo spending now for spending later. Which is what you see a lot of bitcoiners doing now. This deflationary aspect of bitcoin is a primary driver as to why so many people are seeing Bitcoin as an investment asset. I'd argue that more people are holding onto bitcoin more so than using it as a means of "money".

One asteroid will put them out of business - http://www.dailymail.co.uk/sciencetech/article-4128582/Nasa-plans-explore-expensive-asteroid.html     

The richest and the most powerful people buy gold now.