Topic: Serious flaws in Bitcoin monetary policy - page 5. (Read 7095 times)

I`m not even talking about when the coins will be mined, i`m talking about a bubble forming every year due to this flaw, way before all coins will be mined. But yes, i know what will happen then, massive selloff, and big crashes.

1) QE needs to be applied before crash to stabilize the price and deflate the bubble, which will prevent the crash.
Nowadays central banker wannabees do it inversely, which is stupid and irresponsible.

Stimulus package does inflate it more, you are correct, but i`m not talking about keynesian BS here, i`m talking about monetary base elasticity = monetary base adjusted to the supply/demand.

2) Inflation is not controlled, the mere fact that miners halt their progress, will create more inflation because they can mine more BTC now, is really stupid.

3) No this is not Keynesianism, it's only a principle of it, there are some good principles in the Keynesian theory, but as it is is just flawed I don't deny it, the whole central planning style economy is flawed, yes, but still, somebody needs to control the monetary supply.

That can be decentralized aswell, so i`m not advocating here central bankism, that can be a decentralized protocol aswell, but still something needs to control it, otherwise it's just chaos.


See the 2 illustrations I drawed (sorry for my poor artistic skills).

Scenario 1, with fixed monetary base (a.k.a current scenario, this is how bitcoin will end)



Scenario 2, with elastic monetary supply (monetary base adjusted directly to supply & demand)



Scenario 1 is not viable for commerce, and is fully speculative, while scenario 2 is closer to the perfect monetary policy (its nothing similar to the current monetary policy used by central bankers, it's actually the opposite)

With Scenario 2, you can just increase the monetary supply whenever there is a bubble forming (lack of supply/liquidity), and decrease it (delete X% of bitcoins from everyone's walled simultaneously), to make the bitcoin more valuable, and increase demand

I think the elastic monetary theory proposed by me is way superior to the current Bitcoin monetary policy, and to Keynesianism in general. It is the perfect monetary theory in my opinion 

You cannot even claim to know what will happen when all coins are mined, no one knows.

First problem: You are trying to convince that QE is applied directly before the crash, and not after it. Is that even factually correct?
Stimulus packages inflate bubbles even more for obvious reasons.

Second problem: Supply is FIXED. By the way, inflation is controlled. 10% per year right now, and from now on, it will be less. (if bitcoin succeeds)

Third problem: Yes, you are defending Keynesianism.

I don't know if it has been discussed yet, or that anybody observed it yet, so I apologize if it has been discussed already, but I`ve just observed a serious flaw in Bitcoins monetary policy which is very critical to the Bitcoin's price, and it's probably the main cause why the price of it drops for 1 year without stop.

Ok, I have a M.Sc in economics, so I know what I`m talking about, the flaw is in the mining/difficulty adjustment process/mechanism which makes the Bitcoin actually a heavy inflationary currency, and in some cases even worse than fiat.And also there are other problems.

Now i`m not saying that the fiat currencies are perfect, but surely the flaws of the fiat money has been thought about, and some solutions have been offered, while in Bitcoin i see none.

The main problem with bitcoin is the non-elasticity of the monetary supply, which means that it's monetary base it's capped. 21 million, and no more, which is not a good monetary policy.

Here's why, what happen's if there is a shortage in the supply ? For example everyone hoards the bitcoins in anticipation of a higher price, like we see now (it's a fact), which makes bitcoin a speculative currency, creating heavy swings in the price and not very viable for commerce.

So what happens if everyone hoards it (like it is happening without a doubt), is that the price will increase rapidly, and after there is no more supply left, the price will crash. You see, with a Central Bank, when they see a bubble forming, they immediately fire up the printing press, to add more liquidity into the market, and to slow down the speculative price increase by devaluating the currency (ok, the fact that they buy junk bonds and crappy assets is a side issue, but the QE itself is not a flawed principle, it has it's own need if liquidity is small)

Without QE, or any form of increasing the monetary supply, you will definitely have bubbles. Which is funny because bitcoin was created to avoid the flaws of the fiat currency (inflation and depressions), but without inflation you will get crashes  

So let's recap: if there is no way of increasing the monetary supply and people would not sell their bitcoins (because everyone hoards it, in anticipation of a bigger price), then bubbles will form guaranteed! And eventually it will pop out in a big crash.There is no way to avoid it, as we saw in 2014, when the bubble popped.

Second problem:
Elasticity & The mining/ difficulty adjustment mechanism

Pretty flawed in my opinion, here's why:

If the demand for mining is lacking, due to small prices ( as miners wont mine if the incentive is small/ the profit margin)
, then the difficulty will decrease ,yes ? Yes.
A decrease in difficulty will mean that, the other miners which have better equipment /a.k.a can mine at a cheaper price, so their profit margin is higher, they will keep mining, further more, at a lower difficulty level, they can mine more.
=>WHICH RESULT'S IN: HIGHER INFLATION. => EVEN LOWER PRICES

The mere fact that the difficulty drops due to lack of demand and lower prices, will make the other miners mine more faster, which will create more inflation, and will decrease the prices even further.

This is a huge flaw, I cannot believe nobody saw this before, so this mining mechanism is completely flawed, it will forever decrease the price, as the difficulty will drop, and create more inflation which will decrease prices even more!

Third problem

External demand: yes, both problem 1 and problem 2 can be avoided if the demand for BTC will always rise, but that's not the case. With problem 1 due to price swings and bubbles, merchants will have a hard time adopting a currency which fluctuates like madman, without any value stability.And without merchants you can hardly build an economy on it!

It's better to have a small inflation, than to have bubbles and crashes every single year.

And due to problem 2, as it's price decreases perpetually, perhaps we can gain some stimulus, so that people would consume, but not that much since i`ve seen nobody to shop with bitcoins if the price decrease, they will rather convert it back to fiat.

Keynesian consumer stimulus theory doesn't apply to it, because the monetary base it capped, so basically everyone will just buy bitcoins, to anticipate a better price, and not for to make a currency that can be used to build an online economy.

Because of this BTC will forever remain a speculative currency, and will have a really hard time becoming a real money that can be used in trading

I`m really sad that this is the case, but this is the truth, now I`m not defending Keynesianism here, it has it's flaws aswell, fiat money is not perfect, but compared to bitcoin, i think its better.

Any opinions?