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Author Topic: Inflation and Deflation of Price and Money Supply  (Read 523692 times)
MadelynCohen
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March 04, 2018, 09:42:48 PM
 #1001

Wow its such a good explanation about BTC in terms of inflation and deflation.
a general increase in prices and fall in the purchasing value of money is called inflation but bitcoin we use only in online system than how we know that price id less or greater .
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March 05, 2018, 08:05:58 AM
 #1002

its normal if its increase or decrease value but through that kind of matter we must not let that stop our dreams just continue on what you want and it will be given to you in times.,good luck to us bitcoiners.

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March 06, 2018, 05:26:23 AM
 #1003

Decreasing supply/ finite supply = usually deflationary
Increasing supply/ infinite supply = usually inflationary (all fiat currency)
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March 08, 2018, 02:14:27 AM
 #1004

Thanks for creating this thread, even though its 3 years ago it still quite informative and interesting to read about the relationship between Inflation and Deflation of Price and Money Supply. Even though you have a good knowledge of bitcon in general you still need such knowledge to filled up confusion between the two.

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March 08, 2018, 04:46:05 PM
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The relationship between deflation and consumer spending is relatively complex and difficult to estimate. In general, however, in the deflationary state they will initially utilize the fall in prices so that consumer spending rises sharply. After their salary is reduced or even not working again, they will reduce their spending sharply too, so that the number of consumer spending will change sharply down. It is inconceivable how long-term effects will be if deflation is not quickly overcome.

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March 10, 2018, 05:28:16 PM
 #1006

An area dedicated to discussing the differences of these two terms and the theories supporting them.

I'm looking forward to an in-depth discussion on the subject! I've noticed that confusion between the two seems to come up quite a bit on the forum, and thought it may be reasonable to dedicate a thread on the matter.

Pulled from a discussion in Wall Observer



Price-Deflation is what you are used to hearing about in Bitcoin. That term is used to describe the prices of goods/services as they decrease, because the value of Bitcoin goes up.

Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down.

So, when dealing with Price-Inflation or Deflation, there is an inverse relationship of price and value, in regard to goods/services and Bitcoin.

Example: As the Bitcoin price goes from $10 to $20, the prices of goods/services goes down from 20BTC to 10BTC. As the Bitcoin price goes from $20 to $10, the prices of goods/services goes from 10BTC to 20BTC!

Why does the price of Bitcoin go up and down? The price of BTC goes up and down based on the exchange rate, or market price, which is set by buyers and sellers, or traders. They directly trade the Bitcoin currency with all sorts of other currency, and even some with gold; the most popular being the USD (US dollar). They set the price when executing orders to buy or sell. I will get into the actual reason of why the price fluctuates in the last section.



Now that we've gone over PRICE Inflation and Deflation (which honestly, to me, is a term made popular by Keynesian's to hide the real facts, as price inflation/deflation is simply the market exchange rate, reflective of the money supply into a currency from itself and other currencies), let's go over the REAL inflation/deflation of a currency (otherwise known by many as Monetary Inflation).

MoneySupply-Inflation is when the value of Bitcoin decreases when the total supply of Bitcoin increases. In our current state, this is at a generation rate of 25 BTC every 10 minutes.

MoneySupply-Deflation will essentially never occur. It is when the value of Bitcoin increases when the total supply of Bitcoin decreases. This may happen, say, when someone loses their private key and all the BTC associated with it are lost. This effectively "makes the rest of us richer". That being said, there is a SET DECREASE in the generation rate of BTC, so you have sort of a "deflationary effect" in the value, as long as more exchange occurs for BTC at a rate which is faster than that set generation rate.

When all 21 million coins are produced, the MoneySupply will be neutral, and the value will continue to increase (prices will decrease, consequently), as long as people continue to exchange in BTC.

This leads me to the last section.



What determines the PRICE of Bitcoin? The VALUE of Bitcoin at a particular moment.

What determines the VALUE of Bitcoin? The SUPPLY and DEMAND of Bitcoin in the economy.

What determines the SUPPLY of Bitcoin? Currently, the MoneySupply-Inflation rate of 25 BTC every 10 minutes, and traders willing to SELL Bitcoin to BUYERS in exchange for other supplies of money (currencies).

What determines the DEMAND of Bitcoin? Traders willing to BUY Bitcoin from SELLERS in exchange for other currencies.


Therefore: BUYERS, SELLERS, and MONEYSUPPLY-INFLATION (miners) determine the VALUE of Bitcoin, which determines the PRICE of BTC as BUYERS and SELLERS trade based on that VALUE (or supply and demand) of Bitcoin.


We don't exactly know the totality of the supply and demand. Sure, we could try and aggregate data from all the exchanges, but we will never be accurate as there are exchanges which can not be accounted for (OTC). The cool thing is that we DO know the MoneySupply rate, and we DO know the exchange rate. From this, we can determine a real value of Bitcoin when simply multiplying the two factors; a sort of inflation-adjusted view of the currency.

Effectively, the quantitative analysis of supply and demand is really what the currency exchange traders attempt to accurately determine which is conveyed through buying and selling of Bitcoin, setting a VALUE via the PRICED exchange rate of the currency. On a side note, most of the big Market Makers (FX Traders) use this price movement as a way to make a profitable living, as well. Especially when price fluctuations are a consequence of hype or fear (bubbles, cliffs), not factual supply/demand data, and are wildly out of the real price range.

Thus, if you analyze the proper macroeconomic data in an attempt to forecast future DEMAND for more Bitcoin (price increase), you will realize some very interesting things, and have a more accurate picture of where the price is going...

Happy trading! Wink
before I am much grateful for this knowledge, this is a very useful science for me a beginner, with this post I can learn a lot and many know about bitcoin world.

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March 11, 2018, 01:58:14 AM
 #1007

Inflation and Deflation of Price and Money Supply economical theory this concepts are combined each other.
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March 11, 2018, 02:06:35 AM
 #1008

Government need to control these things Inflation and Deflation of Price and Money Supply

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March 11, 2018, 07:16:10 AM
 #1009

Все равно не чего не понял

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March 11, 2018, 08:33:56 AM
 #1010

Great OP. Explains in detail the causes of inflation and deflation
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March 11, 2018, 03:32:40 PM
 #1011

We all know that inflation and deflation are natural that occurs in the market, is this all the factor affecting the price and value of bitcoin? how about now that many country are going to ban bitcoin because of some accusations ?
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March 13, 2018, 06:58:59 AM
 #1012

Money is an abstraction used to settle debts.  Notes and coins are physical representations of that abstraction regardless if they are made of gold or paper.  The only reason gold was used as the material of choice is it had the desirable properties.

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March 13, 2018, 09:03:00 PM
 #1013

Bitcoin is money, it just has all the infrastructure ( Fraud checking and storage etc. ) already built in and only exists digitally, you just have a bunch of people who Bitcoin threatens denying everything and openly refusing to class it as money.
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March 14, 2018, 08:02:18 AM
 #1014

People say value of Bitcoin worth more than gold, if true, I find current price is extremely undervalued. Is it true?
I just simply divide the total mined gold(190k tonnes)by the amount of Bitcoin (21M)
https://www.gold.org/about-gold/gold-supply/gold-mining/how-much-gold-has-been-mined

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March 14, 2018, 08:18:42 AM
 #1015

For the "decentralized real economy" to grow, if Bitcoin is the only payment system, then the "economic grow" will be very limited?
That s y ICO and altcoin exist serve as synergy effect. And the Bitcoin be one of the reserved currency.

 Is it true?

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March 15, 2018, 05:07:43 PM
 #1016

Is in your opinion good that bitcoin have a limited money supply in order to prevent the inflation? Thank you
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March 15, 2018, 05:08:41 PM
 #1017

This is a consistent increase in the price of goods and services over time. During inflationary times, money loses its "buying" or "purchasing" power, and it takes more units of currency to purchase the same units of goods or services. Over time, inflation lowers the value of each unit of currency.
Deflation is  consistent decrease in the price of goods and services over time. Over time, deflation increases the value of each unit of currency.
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March 16, 2018, 08:59:16 AM
 #1018

Now more and more people focus on of the application of blockchain. It seems that it works in nearly all of the senarios in daily life .
Using blockchain to transfer money to friends without a bank; to record your utility fee; to track the logistics, or even notarize your marriage, etc.

Anything else you think of how blockchain change our life? Let's have a brainstorm!

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March 16, 2018, 04:11:15 PM
 #1019

Hello, world. (Long-time lurker, first-time posting. Apologies for any errors in coding or protocol.)

What's missing from this discussion is *disinflation*, a deceleration in the inflation rate rather than a reversal of it. That's what's happening now and I believe that will be the overarching story of cryptocurrency through 2018.



An area dedicated to discussing the differences of these two terms and the theories supporting them.

I'm looking forward to an in-depth discussion on the subject! I've noticed that confusion between the two seems to come up quite a bit on the forum, and thought it may be reasonable to dedicate a thread on the matter.

Pulled from a discussion in Wall Observer



Price-Deflation is what you are used to hearing about in Bitcoin. That term is used to describe the prices of goods/services as they decrease, because the value of Bitcoin goes up.

Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down.

So, when dealing with Price-Inflation or Deflation, there is an inverse relationship of price and value, in regard to goods/services and Bitcoin.

Example: As the Bitcoin price goes from $10 to $20, the prices of goods/services goes down from 20BTC to 10BTC. As the Bitcoin price goes from $20 to $10, the prices of goods/services goes from 10BTC to 20BTC!

Why does the price of Bitcoin go up and down? The price of BTC goes up and down based on the exchange rate, or market price, which is set by buyers and sellers, or traders. They directly trade the Bitcoin currency with all sorts of other currency, and even some with gold; the most popular being the USD (US dollar). They set the price when executing orders to buy or sell. I will get into the actual reason of why the price fluctuates in the last section.



Now that we've gone over PRICE Inflation and Deflation (which honestly, to me, is a term made popular by Keynesian's to hide the real facts, as price inflation/deflation is simply the market exchange rate, reflective of the money supply into a currency from itself and other currencies), let's go over the REAL inflation/deflation of a currency (otherwise known by many as Monetary Inflation).

MoneySupply-Inflation is when the value of Bitcoin decreases when the total supply of Bitcoin increases. In our current state, this is at a generation rate of 25 BTC every 10 minutes.

MoneySupply-Deflation will essentially never occur. It is when the value of Bitcoin increases when the total supply of Bitcoin decreases. This may happen, say, when someone loses their private key and all the BTC associated with it are lost. This effectively "makes the rest of us richer". That being said, there is a SET DECREASE in the generation rate of BTC, so you have sort of a "deflationary effect" in the value, as long as more exchange occurs for BTC at a rate which is faster than that set generation rate.

When all 21 million coins are produced, the MoneySupply will be neutral, and the value will continue to increase (prices will decrease, consequently), as long as people continue to exchange in BTC.

This leads me to the last section.



What determines the PRICE of Bitcoin? The VALUE of Bitcoin at a particular moment.

What determines the VALUE of Bitcoin? The SUPPLY and DEMAND of Bitcoin in the economy.

What determines the SUPPLY of Bitcoin? Currently, the MoneySupply-Inflation rate of 25 BTC every 10 minutes, and traders willing to SELL Bitcoin to BUYERS in exchange for other supplies of money (currencies).

What determines the DEMAND of Bitcoin? Traders willing to BUY Bitcoin from SELLERS in exchange for other currencies.


Therefore: BUYERS, SELLERS, and MONEYSUPPLY-INFLATION (miners) determine the VALUE of Bitcoin, which determines the PRICE of BTC as BUYERS and SELLERS trade based on that VALUE (or supply and demand) of Bitcoin.


We don't exactly know the totality of the supply and demand. Sure, we could try and aggregate data from all the exchanges, but we will never be accurate as there are exchanges which can not be accounted for (OTC). The cool thing is that we DO know the MoneySupply rate, and we DO know the exchange rate. From this, we can determine a real value of Bitcoin when simply multiplying the two factors; a sort of inflation-adjusted view of the currency.

Effectively, the quantitative analysis of supply and demand is really what the currency exchange traders attempt to accurately determine which is conveyed through buying and selling of Bitcoin, setting a VALUE via the PRICED exchange rate of the currency. On a side note, most of the big Market Makers (FX Traders) use this price movement as a way to make a profitable living, as well. Especially when price fluctuations are a consequence of hype or fear (bubbles, cliffs), not factual supply/demand data, and are wildly out of the real price range.

Thus, if you analyze the proper macroeconomic data in an attempt to forecast future DEMAND for more Bitcoin (price increase), you will realize some very interesting things, and have a more accurate picture of where the price is going...

Happy trading! Wink
before I am much grateful for this knowledge, this is a very useful science for me a beginner, with this post I can learn a lot and many know about bitcoin world.

William Freedman, MBA
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March 17, 2018, 05:54:06 AM
 #1020

inflation of price is when the money supply is a large and when money supply is medium and is or controlled then u get more goods and product from the same amount of money as u get when there is more inflation of money. the economy of usa has 100$ as highest denomination where as zimbabwe they has higher denomination for 100$ u get more goods and product as compare to zimbabwean dollar.

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