Bitcoin Forum

Hi all,

Just last month I went to a site which was selling some tickets and they accepted both bitcoins and fiat currency . In this case, of course I choose to pay via fiat currency because I didnt want to spend my bitcoins. Within a week, bitcoin value went up by 15% !!

My point is , due to deflation, why would people  spend bitcoin instead of fiat currency to buy regular items like electronics, shoes, groceries etc. I see lots of these sites coming up, but I am not sure what is the volume of business these sites are doing. Of course bitcoin is the currency of choice to buy stuff like drugs and in a decentralized fashion. Would it still make sense for businesses like Amazon (that anyway ask you to enter personal details) to accept bitcoins, seeing that fact the so much hoarding is going on.

I want to know what is general thoughts of the community on this.

You could use Bitcoins and rebuy them (at least if it's not too much of a hassle to get them).

I think a lot of people prefer saving their money in Bitcoins instead of trying to spend it though, because they see it more as a good investment.
Also don't forget everyone gets paid in fiat right now, if people got their paycheck in Bitcoins they would use them way more to buy stuff.
And currently Bitcoin has to be hyperdeflationary in order to get a magnitudes higher market cap, another point towards investing instead of spending it.

From my experience as a merchant that accepts bitcoin your right. When the price is rising rapidly barely anyone is purchasing items from me with BTC. When the price is crashing I get a flood of orders.

just because the market is 1 BTC = $200 USD at the moment doesn't mean everyone must exchange freely at that rate. You chose not to (you would rather buy BTC with USD), others choose to do so (sell BTC for USD).

It is beneficial to the Bitcoin community and often more straightforward to buy stuff with bitcoin so I spend some of mine from time to time, almost regardless of the exchange rate. I was spending them freely when the exchange rate was under twelve bucks! :)

Using bitcoin for payment then rebuying is a good idea too.

This is a great question and an issue for any deflationary currency like bitcoin.  If you expect it to be worth more tomorrow, why would you ever spend it today?  This is why I think bitcoin will be more of a store of value rather than a medium of exchange if it is successful.

I agree with the others though that spending bitcoin is the best way to further its adoption, so it is an interesting issue.

Did you ever buy a PC or laptop?
Why did you do that? You could buy a better one for the same money if you wait.

This is more a problem of hyperdeflation than deflation.
But Bitcoin will have to go through hyperdeflation for a while in order to become mainstream.

Good to see everybody's thoughts. I agree that until people are still getting paid in fiat which is hugely inflated compared to bitcoin, people would continue to buy using fiat.  Bitcoin gambling website is what I am getting into making ! Ha  :D

Ideal is spend all your fiat as fast as you can because of inflationary nature. And if you cant convert all to Bitcoin, then spending fiat has priority for me. Getting paid in Bitcoins would help, I agree

For tax reasons - it makes more sense for me to convert to BTC and then buy whatever I need. (I am assuming my couple of stored BTC will appreciate in value)

If hoarding Bitcoins is good, sellers will want to hoard Bitcoins, which will mean they will offer buyers lower prices for paying in Bitcoins.

Why do gas stations ever sell gas? They know they can wait until tomorrow when the price of gas will be higher due to inflation. Simple reason: The price of gas *today* already takes inflation into account.

Same for Bitcoins. The price of Bitcoins today already takes into account the fact that people want to hoard them.

Or, to put it another way, if you felt this way, why would you ever buy anything with dollars unless you had no choice? Why would you handle dollars at all?

If you rebuy the spent BTC immediatelly back, there is no reason to not spend Bitcoins. In fact this way you helping your saved BTC gain value and you loose nothing

This is exactly what I also do, although I have to admit that there's not much (yet) I can buy / have bought with Bitcoins (although not nothing!).

"Gresham's Law" Bad money drives out good

http://www.investopedia.com/terms/g/greshams-law.asp


Investopedia explains 'Gresham's Law'
Coins were first made with gold, silver and other precious metals, which gave them their value. Over time, the amount of precious metals used to make the coin decreased because the metals were worth more on their own than when minted into the coin itself. If the value of the metal in the old coins was higher than the coin's face value, people would melt the coins down and sell the metal. Similarly, if a low quality good is passed off as a high quality good, then the market will drive down prices because consumers won't be able to determine the good's real value.

I do both, that way both purposes are supported, investment and exchange.

I have a larger holding of coins that I don't ever sell, and a smaller stash that I use from time to time to buy things. I keep them in separate wallets. This works great because, unlike the merchant's experience posted above, I only spend when it's up because then it's like free money. For example on the last runup to $225 I sold off some for a WalMart gift card from eGifter, payable in btc and sent straight to my phone, where they can scan it at the register. I also paid for a Pro upgrade in Word Press for a blog I participate in. So it's not a lot but it's nice to support people that take btc and frankly I get a kick out of it every time I spend some btc, it makes snicker under my breath for some reason.

Interesting effect.

But... when the value of bitcoin is expected to rise, and therefore the buyer is reluctant to use his bitcoins, the opposite holds for the merchant, he will be more interested to receive bitcoins. The effect should be that his goods are priced lower, balancing the interests of the two parties.

Currently it seems that the merchants see only the usefulness of the transaction, he therefore sells his bitcoins immediately, but this could change when the merchants become aware of the store of value quality of bitcoins.

Hoarding is good in moderation as you certainly don't want a flooded market

Nice thought, so the merchants would give a discount if the user paid in bitcoins(compared to equivalent money in fiat). This would give users an incentive to spend their bitcoins rather than use fiat.

Right, but this discount is already built into the price of Bitcoins. If people want to hold and hoard Bitcoins, they'll be willing to pay more dollars for them than they would otherwise and people would only be willing to trade Bitcoins for dollars at a price higher than it would be otherwise. This is already built into the price.

The exchange rate between Bitcoins and dollars already takes into account expected future price changes. To the extent people think Bitcoin will be worth more in the future, they will demand higher prices for it today.

Why do people buy computers today even though they can get them tomorrow for a lower price? Simple -- they demand a lower price today because the fact that they can get a better computer for less in the future makes that computer worth less today. This is already built into the price of computers.

Based on the results of this poll: https://bitcointalk.org/index.php?topic=148660.0

I tried floating my prices to 10% of cost using MtGox (which is itself effectively a discount if people pay ~10% less to buy BTC practically everywhere else). No increase in sales.

Probably only a 50% or more discount under fiat will get results, despite the majority of poll responses.

Merchants that sell their products for BTC prices below exchange rates have become speculators.  Speculating is not good for a merchant, they now have to hold the BTC until it's value rises enough to repurchase goods to sell.  This means the merchants money is tied up for long periods of time at best and at worst they may suffer a loss in the BTC value crashes (which I've been told has happened before :o).  In the best case scenario the merchant is turning over their money and goods stocks much much slower now meaning their revenue is down and their business may simply not be viable anymore.

Also Joel your statement that future inflation or deflation is accounted for in present prices is just absurd on it's face.  Clearly the continued changing OF thouse very prices indicates that the earlier prices did NOT actually reflect the full future price.  People can not delay the fulfillment of their basic needs so many many transactions will occur regardless of future price expectations, if I need that computer today (perhaps my WoW withdrawal is giving me the shakes) today I will buy it today regardless of future prices.  Sure some people will delay purchases and that will lower demand and drop prices but it will be only a partial realignment and producers will be correcting as well by lowering production and offsetting the decrease.

Right, that's why merchants generally won't do that, nor should they. They can just sell the Bitcoins at the present rate and *still* benefit from their future value because they are selling that future value for its full value. When you sell a Bitcoin today, one of the things you are selling is the right to hold that Bitcoin and benefit from its appreciation in value. The price you get will include the value of that.

That's not what I said. I said if the deflation is predictable and reliable, it will be reflected in the current price. If it's not, it won't induce hoarding. You can't have it both ways.

But that's the beautiful thing, you don't have to. You can get the benefit of the fact that computers get cheaper over time without having to delay your purchase. The price of computers *today* already reflects the fact that they get cheaper over time. The prices would be higher if not for that. The price of oil today reflects the expectation that it will be more expensive in the future. Google "speculators raise price of oil" for a thousand articles explaining how present prices come to reflect expected future changes in value.

This is a real issue that will only be resolved when there is a vast depth of market.

At 2Bill market cap BTC can easily double in 3months. That kind of appreciation as it continues will put off spenders as we see, and so the bitcoin retail economy will not flourish. When the market cap is closer to 30Bill or even 300Bill the increase in BTC value we see over a few months may be closer to 10%. People will spend BTC in the retail environment in much larger amounts at that more restrained rate of increase. A widespread bitcoin economy may be some years away when BTC is hoarded.

Total BTC   11,964,100 BTC
Market Cap
based on latest prices
3,644,623,783 USD
or 3,084,344,980 EUR
or 11,751,737,225 PLN
or 2,520,397,625 GBP

People use Bitcoins for transactions that you would not want to use fiat for.  Gambling.  Drugs.  International money transfers to countries that tax remittances.  Transfers of funds that have not been taxed in the place they were earned.  For a Bitcoin user, the $:BTC rate is meaningless as they quickly put money into Bitcoin, do the transaction and equally quickly its converted into cash to pay a bookie, deal or impoverished relative.

Only if they intend to sell the BTC. Probably a discount is just the most hassle free way
to acquire BTC - no risk of having your bank account closed, or exchange going bust while you wait for withdrawal.

the whole law I believe states this is true until it isn't, eg hyperinlation of the debase currency, and it's back to gold (i'm not a gold bug by the way)

you can have two wallets: one for your savings and one for buying stuff.

Emphasis mine. As a merchant myself, I agree with this but would like to add a caveat.

Once the rise has paused, I get more orders as people attempt to realize their profit.

Real life example for this year:

I had buyers using Bitcoin at $45 (It hung around that level for almost 2 weeks.)
I had buyers using Bitcoin at $145 (It hung around that level for a while.)

Haven't had any Bitcoin sales since it punched through $250.

On the reverse side, when Bitcoin trends down, sales have only marginally improved according to my accounts.

If a merchant wants to sell his product for $100 and accepts BTC at the spot exchange rage equaling $100 and then immediately liquidates the BTC to that $100 then the merchant would be avoiding all speculation and any risk of loss or potential for profit from the change in exchange rates.  Such a merchant would thus gain nothing from the appreciation in value because he dose not hold the BTC for any appreciable amount of time, without holding over time you can't enjoy the benefits of deflation.


What exactly do you mean by reflected?  At first I though you meant something like "an expected future price of X will cause price to rise FULLY to X" but perhaps you just meant it will rise some amount towards X but not entirely to X.  Obviously 'predictable and reliable' has a lot to do with how strong that rise is going to be, the less people predict the future increase in the commodities value or if they think it is unreliable for any reason they will be less inclined to buy the commodity for the purpose of selling it later to reap a profit, aka speculating.  In an economy of actors endowed with perfect future knowledge their might indeed be price rises all the way up to the future price but in the real world no consensus on the future could be that perfect.  This is the point I'm making, that their will always be a gap between present prices and future prices, we can never arrive at a point when the future has been so fully accounted for in the present that prices stop changing.

Also I think your double negative "If it's not, it won't induce hoarding." has one too many negatives.  Certainly if present prices are lower then future expectations then people will hoard/speculate in the commodity.  If present prices match expected future prices then speculation would cease.


I think both your computer and oil examples ignore a major factor, the producers of both commodities are not speculating in them.  A computer manufacturer needs to sell it's computers so it can make a revenue in the present and spend that money on making more computers, rinse and repeat and make a small margin each time which adds up to enough to cover over-head costs and then leave a decent profit at the end.  Oil producing nations generally need to make money to run their welfare-states which hold Arab-spring like revolutions at bay (temporarily).  The fact that computers made today will become obsolete in the future is not really deflation, it is a product perish-ability issue.  Just as a Farmer who has grown a bushel of apples needs to sell them before they go bad the modern computer needs to be sold before it becomes obsolete.  The Farmer would still need to sell fresh apples urgently (which would keep prices down) even if he knows the price of apples will be high next year, he can't speculate in a perishable commodity.  Together the need to turn over inventory and technological obsolescence (or sometimes just fickle consumer tastes) force producers to sell their newly produced goods at the present market price, not at some price that reflects what the good would sell for in the future.

The Oil speculator thing is something I'm quite familiar with and a piece of conventional wisdom, but I'm sure you would be the first to admit that 'conventional wisdom' is an oxymoron.  The price of oil is actually rather resistant to manipulation by speculators because the world storage capacity for oil is very modest at only a 3 months worth of imports.  Oil is sold on a futures market and a futures contract gives one the right to buy a commodity at a certain price in the future from a certain producer, if the market is glutted at that future date then the contract is worthless because anyone can go into the market and buy for less then that agreed price.  So a wide belief that a commodity is going to be in shortage in the future can indeed cause future contracts to be sold at very high prices, the shortage must actually materializes for the price to rise, it can't be raised by the speculators in the futures market alone.  Only when someone buys and removes supply from the market thus creating a shortage can speculation produce a rise in prices (this actually happened in the Onion market once when all Onions futures were bought and the Onions stockpiled in Chicago it caused Congress to ban all futures contracts in Onions, the only commodity future banned in the US today).  Oils thin storage capacity means that buying and storing oil to try to drive the price up is rather self defeating, because full storage is the main indicator to the market of a future drop in price.  During the witch-hunt directed at 'oil speculators' in the 2008-2009 period oil inventories were continuing to fall, not rise, thus the whole thing was completely baseless and served only to distract people from the far scarier problem of Peak-oil and the failure of the political classes to reduce dependence on foreign oil.

Obviously BTC isn't perishable and it's ridiculously easy to store so price can go (as people here love to say) TO DA MOON in a speculative bubble.  But were talking about how the normal economy works here with computers and oils and such, BTC is a completely different and highly abnormal commodity and your applying it's strange qualities to real things and thinking this is how real things work too.

Everyones buying to horde...but now the price is too high and demand is falling....I think another crash is coming..

That's not true. You don't have to hold over time to enjoy the benefits of deflation. You can simply sell the right to hold the asset as it deflates for the full present value of that deflation. Say we all knew that gold would be worth $5,000 per ounce next year to a certainty. When you sell an ounce of gold, you are selling the right to have $5,000 next year. So the price of gold will be at least the value of $5,000 next year, whatever that is. You can sell the right to the deflation to someone else for its full value, so long as that deflation is predictable.

Right, because future prices are unpredictable. That is, a Bitcoin is worth $300 today because we *don't* know that it will be worth $400 next month. If we knew that, nobody would sell them for $300 today because there would be enough people who want $400 next month that they'd bid up the price.

Exactly, and as a result, he has to make his prices low enough that consumers will buy them, even though those consumers know they can buy cheaper computers with more power next year. So a consumer will find the deflation already priced into today's computers. You don't have to wait to next year to benefit from the fact that computers will be better and cheaper next year, you can buy one today and that is already priced in.

Right, so all these factors are already built into today's price. If apples lasted forever, they'd probably sell for a higher price today.

All the factors that make it hard to price the future for things like apples, computers, and oil don't apply to Bitcoins. They are essentially free to hold, have low transaction costs, and are easy to transfer. There is nothing stopping future expected price changes from being priced into present prices, except that nobody knows what future prices are.

Whatever people expect future prices to be, with Bitcoins, nothing stops them from pricing that into the present. The reason Bitcoin prices aren't higher today is that people are *not* sure they'll be higher in the future. People who want to speculate on the future price of Bitcoins can buy them today at a fiar price. There is no need to "hoard" Bitcoins because the market price is fair to both the buyer and the seller.

Your still not quite getting it Joel.  Let me lay out a very simple scenario for what a merchant dose and try to make it clear they are not getting anything from deflation.

Merchant has $100 USD, Merchant buys inventory at wholesale with USD and needs to double his money to cover overhead costs.  Merchant offers goods at a $200 USD OR equivalent in BTC at the spot exchange rate.  Customer purchases with BTC, Merchant immediately converts BTC into USD at spot rate and now has $200 USD.  I'm even ignoring the fee the merchant would incur when using an exchange.

Our merchant has not held BTC for any appreciable amount of time so their is no gain or loss in the value of their coins while they hold them.  You keep repeating your statement about selling future value but your ignoring that the merchant is also acquiring the BTC as payment under basically the same future deflation expectation so these basically cancel out.  Only people who have been holding an asset over time can gain OR lose from a change in value, people who are simply 'pass-through' don't take any risk.  This is really not a hard concept to grasp.

With regard to Computers, Apple and other things I'm going to cut my losses on trying to explain this as you clearly don't want to acknowledge any distinction between changes in asset prices and perish-ability of an asset, though it should be obvious to anyone that these are profoundly different.

We're saying the same thing. We're in violent agreement. Deflation is irrelevant because you have to buy the right to hold a deflationary asset at its fair market value and you can sell it for its fair market value. So it cancels out.