Bitcoin inflation graph

[tucenaber]

Many people have realised in recent months that there is a downward trend in the Bitcoin price and that this most likely will continue for a while due to the inflation in the supply combined with a slowdown in the inflow of new capital. I haven't seen a graph though, so I thought I would post one.

In the beginning the inflation was necessarily ridicously high. It is still very high - 40-50% depending on how you calculate - and will not reach reasonable levels until after the first halving of the block rewards, and even then the inflation will be higher than your average paper currency. As a matter of fact it won't come down to 2% until somewhere around 2018!



Note that I used a log scale for the y-axis for no other reason than to clearly show that the rate of inflation is cut in half with every decrese in block reward.
 

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[paraipan]

interesting... thanks

[Rockford99]

grow over time.  Yes, THERE IS  a lot of potential inflation.  Will the demand for BTCs increase commensurately, thus ensuring an stable or increasing BTC purchasing power?  I hope so!  I expect so.

The money supply growth is a potential problem, but in order for this to be widely used, you need to initially distribute a lot of BTCs.

[tucenaber]

Of course the inflation is a necessity, and I'm still hopeful in the long term. A lower rate of inflation now would also mean an even longer time util it stabalizes, so the balance is well thought out in my opinion. Right now, you probably shouldn't look at bitcoins as an "investment vehicle", though.

One way to look at it is that today's newbies are actually really, really early adopters. There is a long time still where you will be able to accumulate coins which the real late comers will complain was distributed "unfairly" 

[TurtleBay]

A purely supply side function for pricing Bitcoin won't work when prices are actually a function of supply and demand.  I would like to note that the purchases of Bitcoins (which you refer to as the inflow of new capital) is not fixed but is a function of outside variables.

It is easy to refute your graph because Bitcoin went from less than a dollar to around 30 dollars at one point earlier this year, which was a huge deflation, but the graph shows no deflation at all between 2009 and 2011.  If the inflation level equation in the graph had basis in reality, why doesn't the function correctly show what happened over the past year?  You need to do some backtesting.

Also, the word 'compounded' is spelled wrong on the chart.

[ticicles]

that's interesting

[heppel]

wouldn't it be nice if complex things could be forecasted that easily ?

[kyoo]

Nice graph - This shows the influence of the newly generated BTCs on price. We all know that the value of BTCs depends on many other factors as well. And only the sum of all of these factors builds the price of a Bitcoin and only by considering all the factors (which is not really feasable IMHO) we can come to a conclusion if we will have inflation or deflation (i.e. higher or lower purchasing power of a Bitcoin).
I for myself am trying to buy and sell as many things as I can in BTCs and thus helping to get a deflation and get rid of the banksters as quickly as possible.

[tucenaber]

It is easy to refute your graph because Bitcoin went from less than a dollar to around 30 dollars at one point earlier this year, which was a huge deflation, but the graph shows no deflation at all between 2009 and 2011.  If the inflation level equation in the graph had basis in reality, why doesn't the function correctly show what happened over the past year?  You need to do some backtesting.

If you look carefully you should realise that I'm talking about inflation of the money stock, or the supply, not price inflation. When you understand that you also realise that the graph shows a fact and is not refutable.

Edit: Perhaps I should add that I believe it to be irrefutable when you ignore the bitcoins permanently lost.

Also, the word 'compounded' is spelled wrong on the chart.

Oh, gee thanks  

[netrin]

... downward trend in the Bitcoin price ... inflation in the supply ... very high - 40-50% depending on how you calculate

There are ~7200 bitcoins mined every day (50 btc reward x 6 per hour x 24 hours). There have been more than 7.7 million bitcoins ever mined. Monetary inflation is therefore less than 0.1% daily, 3% monthly, 34% annually. There is no significant relationship between monetary inflation and exchange rates. Since June, bitcoin depreciated at almost hyper-inflationary rates (50% monthly) and previously appreciated at triple digit monthly rates.

[netrin]

It has not yet been significant. When monetary inflation was greatest, the deflation was also greatest. And the converse, as monetary inflation has halved, the price inflation has increased (on average, infinitely so). Not only is there little relationship, one might say it has been INVERSELY related.

You seem to argue, from a purely theoretic perspective, that without the monetary inflation, the depreciation since June would not have been as severe, but you have no empirical evidence to back up that claim. Even if true, the exchange rate might have been $3.5 instead of $2.5. I'd call that insignificant.