The hoarding problem

[Walter Rothbard]

I don't want to get into an argument over semantics or whether or not "hoarding" has negative connotations, but let me just say that when you ask anyone what they do with the money they "save", they will say they invest it or put it in bank account (also "investing"), and they won't say they store it in a safe ("hoarding").

Actually, no, sometimes I've saved for a purchase by taking a little cash out of the bank each week and putting it somewhere until I had enough for the purchase.  Once I even kept it under my mattress.  Not all saving is investing, and not all saving occurs in a bank.  This kind of saving still represents deferred consumption, and is still beneficial.

[Walter Rothbard]

It may become noticable if there is a major shift in the habit of savings, for example if people around the world at the same time believe that something bad is going to happen.

This illustrates the fact that saved/hoarded money produces security, an economic good.

[xxjs]

I don't want to get into an argument over semantics or whether or not "hoarding" has negative connotations, but let me just say that when you ask anyone what they do with the money they "save", they will say they invest it or put it in bank account (also "investing"), and they won't say they store it in a safe ("hoarding"). Thus in practical terms, "saving" is more "investing" than "hoarding".

I suppose you could use the word saveing for both stuffing money in the mattress and investing.

With saving I mean hoarding, ok.
When you put money in a bank account, you are really lending via a corporation of other lenders (the bank) to others, who might invest them. People think of it as saving (hoarding) because the money is readily available and guaranteed by the state.

My main point is that the hoarding problem (if it is even a problem) is due to the lack of investment opportunities. On the other hand, Bitcoin will eventually experience FRB and then there could be an inflation problem! People that predict absurd values for BTC often overlook this eventuality.

Yes, with fractional reserve banking, the bitcoin wider money supply would increase. But not like now, because there would be no one to bail out the bank, and people would be suspicious to the fact that more money is lent than deposited, and a run on the bank would be more likely.

Also, I think it is interesting to note that you can't hoard bitcoins forever (unless they are lost). Eventually, they will be spent or transferred to someone else. So, even hoarded bitcoins are part of the money supply in the long run.

I agree, there isn't really a difference between hoarding and spending when you look at the total. The coins will always be in someones wallet.

[Duckphobia]

I think some of the hoarding problem is that there really isn't anything to spend bitcoin currencys on! That's the main reason I am not spending, because there is only gambling, drugs and small electronics dealers that accept bitcoin. If there is more reason to spend it there is less hoarding in the future!

[notig]

The issue of a deflationary currency in regards to bitcoin I think is silly. If the price is going up it will encourage people to hoard it. But a rising price with something as uncertain as bitcoin also means that it will actually make people want to sell it when the price goes up........ you know in case the price goes back down.  If the price of bitcoins suddenly shot up tomorrow to 30 dollars a bitcoin I bet there would be a lot of selling going on. The only way a deflationary aspect and hoarding could hurt bitcoin.......... is if the price was guaranteed to go up. But it's not guaranteed.

[twolifeinexile]

The issue of a deflationary currency in regards to bitcoin I think is silly. If the price is going up it will encourage people to hoard it. But a rising price with something as uncertain as bitcoin also means that it will actually make people want to sell it when the price goes up........ you know in case the price goes back down.  If the price of bitcoins suddenly shot up tomorrow to 30 dollars a bitcoin I bet there would be a lot of selling going on. The only way a deflationary aspect and hoarding could hurt bitcoin.......... is if the price was guaranteed to go up. But it's not guaranteed.

For any short run , yes, it fluctuates and people may sell high, but in the long run, there is Trend.

[nobbynobbynoob]

For any short run , yes, it fluctuates and people may sell high, but in the long run, there is Trend.

A non-guaranteed trend which could stop at any time, indeed.

Though should bitcoin use even reach a noticeable fraction of critical mass engagement, I can't see its price not being above (if not well above) $1 per mBTC to be honest. But that's just me and I could be very wrong. My opinion, along with quite a few others I've witnessed, is that within five years or so, a bitcoin will either be worth >>$1000 or basically nothing, but probably not something in between.

[twolifeinexile]

For any short run , yes, it fluctuates and people may sell high, but in the long run, there is Trend.

A non-guaranteed trend which could stop at any time, indeed.

Though should bitcoin use even reach a noticeable fraction of critical mass engagement, I can't see its price not being above (if not well above) $1 per mBTC to be honest. But that's just me and I could be very wrong. My opinion, along with quite a few others I've witnessed, is that within five years or so, a bitcoin will either be worth >>$1000 or basically nothing, but probably not something in between.

That I agree, bitcoin's is Schrodinger's cat, binary fate.

[Offthechain]

I am a hoarder... mostly because there is basically nothing to spend them on in the UK yet! I pay for a VPN with them, thats it.
I hope more vendors accept it soon. Hardly anyone has head of BTC in the uk!

Its probably a good thing, slow and steady growth... though thats not whats happening today!!!

[Beepbop]

This is because they realize they will lose value to inflation if they simply put it in a safe. With strong money you are safe from such loss and don't need to risk your money in such a fashion.

The money thus will not make it back into the economy until the person hoarding/saving sees something (s)he wants to spend said hoard on. There's no incentive to invest, and there's no incentive to borrow money to put it to work either since debts rise while prices go down. If this is allowed to run away it turns into hyper deflation.

Then - even if the market adjusts to the money taken out of it, and the currency unit is infinitely divisible - there's the risk that some of the saved-up money suddenly floods the market. If the GDP of a country is 1 BTC, after some incidents of lost wallets, and Satoshi suddenly decides to cash in 2 BTC - what happens then? You might dream that you'll be that person - and if there are many such persons the risk will even out as the fatcats cash out gradually - but where except for some kind of Objectivist or Feudal utopia would people accept that state of affairs?

However, such a process does not affect the market: purchases made yesterday for $14/BTC1 were fair, and purchases today for $14/BTC0.01 are also fair.

That only holds true if you only use BTC as a transfer method for relatively stable currency such as USD, and transactions lasted less than a day. It would not hold true if anyone had a contract, a loan, a price list, a mortgage, or held any other instrument or document denominated in BTC that had an impact on their lives. BTC could be infinitely divisible, but with that kind of volatility it could not be a serious currency. It couldn't even be used for transactions that you immediately convert to another currency, since the value could have changed between the customer making the order and the product going out the door. (Well, that could be months in some cases we know, but it could be true even for groceries.)

From reading this thread, it indeed seems that most of you consider Bitcoin to be simply vehicle for speculation rather than an actual currency. And if it gets too volatile it won't even work as a temporary intermediary currency.

As a thought experiment, what happens if one person has collected - say - 80% of the money as some sort of dragon of Norse myth, and the rest of the economy decides "we don't want to be subject to that guy's whims - we'll make a new currency". Unlike the dragon's hoard of gold Bitcoin has no value as raw material, unlike fiat it has no backing from the government and courts, and unlike physical money has no numismatic value (the blockchain is public anyway) - so there's nothing to stop the rest of the market to decide that they don't want anything more to do with the Bitcoin currency.

If the dragon lost the purchasing power of his gold, he could at least swim around in it, and maybe earn some new money for food by charging admissions.

[notig]

As for volatility... if the price of bitcoins did stabilize, when would be a reasonable time to expect that? 10 years from now?

If bitcoin goes up in price enough I think the high price itself would stabilize the currency. Because if bitcoins were worth 1000 a piece.... then ups and downs of tens of dollars would be miniscule compared to what we are seeing right now when it rises by just 30 cents.

[DannyHamilton]

As for volatility... if the price of bitcoins did stabilize, when would be a reasonable time to expect that? 10 years from now?

If bitcoin goes up in price enough I think the high price itself would stabilize the currency. Because if bitcoins were worth 1000 a piece.... then ups and downs of tens of dollars would be miniscule compared to what we are seeing right now when it rises by just 30 cents.

30 cents divided by 17 dollars is a change of 1.76%
20 dollars (the minimum that can be considered "tens of") divided by 1000 dollars is a change of 2%.

Nope, ups and downs of tens of dollars would definitely be bigger than what we are seeing right now when it rises by just 30 cents.

[notig]

I'll reword it so it sounds better. It would take a price drop of 500 dollars  if bitcoins were worth 1k each to halve your value. Now it only takes....... 9.5 dollars. It seems like there should be more stability simply because the price is higher(and of course the price couldn't get that high without a much larger transaction volume which might smooth things out).... but  one thing I like about bitcoins is that nobody knows what they are going to do.

[xxjs]

As a thought experiment, what happens if one person has collected - say - 80% of the money as some sort of dragon of Norse myth, and the rest of the economy decides "we don't want to be subject to that guy's whims - we'll make a new currency". Unlike the dragon's hoard of gold Bitcoin has no value as raw material, unlike fiat it has no backing from the government and courts, and unlike physical money has no numismatic value (the blockchain is public anyway) - so there's nothing to stop the rest of the market to decide that they don't want anything more to do with the Bitcoin currency.

If the dragon lost the purchasing power of his gold, he could at least swim around in it, and maybe earn some new money for food by charging admissions.

Nice thought. Just a little modification - how about of 50% of the money? That is what one party has in Syria - and that is each month! In fact, it is the definition of hyperinflation *).

It is probably not easy to get 80% of all the bitcoins, and it will be even less easy with time.

*) It is defined by 50% price increase per month really, but a definition of money supply inflation of 100% per month could also work.

[xxjs]

This is because they realize they will lose value to inflation if they simply put it in a safe. With strong money you are safe from such loss and don't need to risk your money in such a fashion.

The money thus will not make it back into the economy until the person hoarding/saving sees something (s)he wants to spend said hoard on. There's no incentive to invest, and there's no incentive to borrow money to put it to work either since debts rise while prices go down. If this is allowed to run away it turns into hyper deflation.

There can be no hyper deflation. There can be deflation of money supply (because bitcoins will start to diminish at some point due to losses). In the take up period (like now) there will be deflation of prices, but eventually it will stabilize.

Remember, any actor will hold some money for spending in the future, have some safe investment returning near the natural rate of interest (which is based on each individuals time preference), lend low risk (deposit in bank or a lending consortium) for the same natural interest rate, and invest in risky entrepreneural projects (where profit and loss cancel each other out). There will never be a situation where people only hoard and never spend. That would be nonsensical. All kinds of saving of money or investment is for consumption in the future.

Spending and consumption will cancel each other in the long run. Temporary increase in total saving can occur if some kind of global crisis is expected, in that case a temporary decrease in prices will result.

The current deflation scare is partly a denigration of common people and their capacity of understanding that an increase in salary is no good if the prices of goods increase correspondingly, and partly it is a fake argument to support the transfer of wealth to banksters.

[TehTDK]

I never think hoarding will be an issue, not a large scale issue at least. At some point people will become inclined to hand off either all of, or some of their BTC's to real money in order to liquidate in the event of a market crash or simply because its too tempting not to. One of the real problems will be the market powers that will accept BTC as legal tender, that would need to liquidate their coins in order to pay their bills, but as the price of BTC's rise they will struggle more and more to get the BTC converted to real money and eventually would have to stop accepting BTC.

Eventually more and more shops will close their doors to BTC and it will slowly turn into a less useful currency, just like it started out to be. At least in general, as it can still be used to found rogue organisations and what not, but hey presto, they too will struggle to find someone to pay top dollar for their BTC's so in the long run my predictions are that the market will stagnate and then slowly decline with dropping BTC prices. At some point we will reach a cutoff and then the market will sprint up again.

Just dont ask me how long that process will take.

[twolifeinexile]

I never think hoarding will be an issue, not a large scale issue at least. At some point people will become inclined to hand off either all of, or some of their BTC's to real money in order to liquidate in the event of a market crash or simply because its too tempting not to. One of the real problems will be the market powers that will accept BTC as legal tender, that would need to liquidate their coins in order to pay their bills, but as the price of BTC's rise they will struggle more and more to get the BTC converted to real money and eventually would have to stop accepting BTC.

Eventually more and more shops will close their doors to BTC and it will slowly turn into a less useful currency, just like it started out to be. At least in general, as it can still be used to found rogue organisations and what not, but hey presto, they too will struggle to find someone to pay top dollar for their BTC's so in the long run my predictions are that the market will stagnate and then slowly decline with dropping BTC prices. At some point we will reach a cutoff and then the market will sprint up again.

Just dont ask me how long that process will take.

Become legal tender cause liquidation?? What is the logic behind that?

[notig]

Aren't a lot of businesses who accept bitcoins currently liquidating them instantly.. before they even get them. In fact not even touching them? I don't see that as a problem really.

[TehTDK]

I never think hoarding will be an issue, not a large scale issue at least. At some point people will become inclined to hand off either all of, or some of their BTC's to real money in order to liquidate in the event of a market crash or simply because its too tempting not to. One of the real problems will be the market powers that will accept BTC as legal tender, that would need to liquidate their coins in order to pay their bills, but as the price of BTC's rise they will struggle more and more to get the BTC converted to real money and eventually would have to stop accepting BTC.

Eventually more and more shops will close their doors to BTC and it will slowly turn into a less useful currency, just like it started out to be. At least in general, as it can still be used to found rogue organisations and what not, but hey presto, they too will struggle to find someone to pay top dollar for their BTC's so in the long run my predictions are that the market will stagnate and then slowly decline with dropping BTC prices. At some point we will reach a cutoff and then the market will sprint up again.

Just dont ask me how long that process will take.

Become legal tender cause liquidation?? What is the logic behind that?

Care to elaborate?, I dont really get what you are hinting at.

[atpcas]

The total possible bitcoins is only 21M, and now half of that is out in people's hands. It is limited in supply, I think for most people bitcoin is also not their major assets, so they do not have to worry to liquidate them to get back resources they need.

All these factors make it so easy to be hoarded and price go up and up and up, but actually normally economy forms around it.

In real life, people will still use fiat, bitcoin become a collectable that is in the process of forever wasting resources (blockchain hashing), doing nothing. (price may still go up and up)

What if this is the end result?

(Not saying I agree with this viewpoint, but I think there is merits and people should think about this)

Hoarding is going to be an issue with any finite resource of value.   Fortunately each bitcoin is highly divisible.