Bitcoin Forum

People talk about how bitcoin is deflationary and therefore will necessarily experience price increases, but this isn't quite true. Since miners are producing 3,600 bitcoins a day, bitcoin presently is inflationary.

What does this mean?

Well, it means that in order for the bitcoin price to stay stable, people have to continue buying it! If buying stagnates, the price will slowly drop as more bitcoins enter the market. This is a problem because once everyone who would be interested in buying bitcoins buys bitcoins, the price will drop. In order for the price to even stay steady, bitcoin has to continue to grow.

This is even more of a problem the higher the bitcoin prices goes. Say there are 1000 people who each want to invest $1000 dollars. If bitcoins are at $100, then can each buy 10 bitcoins, or 10,000 bitcoins total. Since there are only 3,600 new bitcoins a day, the other bitcoins have to come from others who want to sell and the price will tend to go up.

If bitcoins hit $1,000, though, those 1000 people can only buy 1 bitcoin a piece. There now will be a surplus of bitcoins mined and the price will drop.

Fortunately, as time goes on, the mining reward will drop and bitcoin will become more deflationary. But presently there is a danger that the price will rise too fast as too many people jump on the bandwagon too quickly. And then as the frenzy begins to slow, the continual influx or more bitcoins will cause the price to drop.

We need to be careful in this present bubble.

I depends. I see it as a currency with ~21M units. That they haven't been given out yet does not mean they don't exist.

Of course it does have an impact on market price as the unavailability of almost half of the total market cap reduces availability.

That's an interesting way to look at it. But if you look at it that way, it means there basically is a miser that owns almost half of the total capital and will slowly sell it off over the next 130 years or so, quickly at first, and then getting gradually slower. The impact of someone who will sell off 25% of the total currency available in 4 years definitely is a downward force on price.

I almost agree. It is good to keep in mind though, that it's not 'someone' selling. With a person (or government ;)) the total amount of currency and the rate at which it is released is far less predictable. For Bitcoin the agreed upon numbers are nearly certain (and completely certain without a hard fork).


I agree (see the second part of my previous post). The reason for the downward force, however, is an increase in availability rather than a change in intrinsic value. Intrinsic changes due to an increase/decrease on application.