Inflation and Deflation of Price and Money Supply

[Luke_Turner]

Of course inflation also affects the performance of the crypto currencies. To avoid confusion, money supply (or its increase) is better to be used instead of monetary inflation since deflation (the opposite of price inflation) has only one meaning (namely, currency appreciation). There is no monetary deflation in the sense of money supply contraction. This should be taken into account when investing in bitcoin, that every year inflation will take a certain percentage and should be included in your calculations.

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[robbietobby]

Our economic class during my high school keeps on remembering that its important in this kind of situation. All deflation rate and inflation are affected when it comes to talking 'bout economical value status such as bitcoin. Yes, this is right, cryptocurrency is affected by just increase or decrease ina dynamic way of monetary values depending on a lot of factors to where it will be obscure.So all the prices in the market will be ones be greater influence by just making instance and how economy develops. Keeping in mind that all people all over the world is affected by this kind of process.

I do also remember they taught us how money cycle in the system. And its very applicable in this situation.

[nauredok]

In fact, the quantitative analysis of supply and demand is in fact that currency exchange traders are trying to pinpoint which is transferred by buying and selling Bitcoin, setting VALUE through the VALUE exchange rate. On the other hand, most large market-makers (FX Traders) use this price movement as a way to make a lucrative life. Especially when price fluctuations are the result of hype or fear (bubbles, rocks), rather than actual data on demand and demand, and are outside the real price range

[TobMarshall]

Inflation,when the price of goods and services rise in response to increase amount of money in circulation leading to a fall in value of such currency. And the major cause of inflation is linked to increased money supply. Another is exchange rate.
While deflation is termed as a long time fall in the price of goods and services as a result of withdrawal of Money supply. It occurs when inflation falls below 0%. This suggests that both inflation and deflation are needed if properly handled with balanced understanding of their usefulness. In usage to bitcoin, inflation of the currency will definitely affects the general prices of goods, but the supply of bitcoin is needed. So what should be done, a better form of regulations is to be adopted to help the value of the bitcoin. Since demand and supply play a vital role in inflation and deflation then the price of bitcoin with it value should be looked into when such volatility creeps in.

[Minh maluco]

In fact, Menger described money and the adoption of a commodity as money, as the commodity with the higher level of resellability, not purchasing power stability.
When people acquire money they do desire purchasing power stability, but implicitly they expect maximum resellability. When you spend money to acquire something, there no delay in people accepting it, like there could be with people selling homes, gold, silver (they were de-monetized long ago)

[HI KITTY]

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!

Inflation occurs when the prices of all goods and services are too high while deflation is the opposite of inflation. However, there are big effects of inflation and deflation in our economic status because when inflation is on-going it will increase all the cost of goods and services it is not good for the economy or individuals. Inflation may reduces the value of money unless interest rates in are higher than inflation. We cant save enough money if there's an inflation especially to those who can't afford the goods and services.

In terms of deflation, the wages for the employers are generally sticky to a very less price but the prices of goods and services are too low that everyone can afford and thre's no money circulation in our economy. Furthermore, costs are the main topic for these subject.

[mark 4]

How did you come up with 20% amortization rate?

[brolekset]

Inflation is better if:

you have outstanding loans or other significant debts – they will be impaired.
You need a loan - if public loans are available for banks, they will also be more accessible, interest rates on such loans will fall in relation to the increase in prices.
Deflation is better if:

You do not have debts on loans or other unpaid loans – if deflated, the salary will also decrease, but the payments to the Bank will remain at the same level.
you have savings in the national currency – their real value is growing.

[RippleSpaset]

Inflation and deflation have negative social and economic consequences, so the States are actively fighting these processes.

The method of "expensive money"is used to fight inflation. Monetary authorities are directing their efforts to reduce the volume of money supply. Against inflation is applied the increase in taxes, reduction in lending, reduction of government spending and increase in sales of government securities.

To combat deflation, reverse measures are taken.

[cok_elat]

Inflation and deflation have negative social and economic consequences, so the States are actively fighting these processes.

The method of "expensive money"is used to fight inflation. Monetary authorities are directing their efforts to reduce the volume of money supply. Against inflation is applied the increase in taxes, reduction in lending, reduction of government spending and increase in sales of government securities.

To combat deflation, reverse measures are taken.

do not forget to include external factors such as the benchmark interest rate from the Fed which also affects the monetary policy of a country must reduce or increase the amount of money in circulation

[Cavanho27]

You all may be very interested in my new Federal Reserve of WIP coin, which is centralized and by fiat.  There is a discussion thread in here as well.

[lyn11]

Inflation is caused when goods and services are in high demand, creating a drop in availability. Supplies can decrease for many reasons: A natural disaster can wipe out a food crop; a housing boom can exhaust building supplies, etc.
Deflation occurs when too many goods are available or when there is not enough money circulating to purchase those goods. For instance, if a particular type of car becomes highly popular, other manufacturers start to make a similar vehicle to compete.
Price depends on the demand of the product for example if the people really need that product the price may increase.
Money supply depends only on the customers of the products in that specific market.

[criza]

Relatively, the value of the Bitcoin and the price of the products and/or services are inversely proportional to each other; resulting to price inflation or price deflation. Price inflation simply means that everytime the value of Bitcoin decreases, the price of the products and/or services increases. On the other hand, what happens in price deflation is the opposite of what happens to price inflation. Price deflation means that if the value of Bitcoin increases, the price of products and/or services definitely decreases. All of these price inflation and deflation varies upon the value of Bitcoin. Therefore, the rate of change of the price depends on the value of Bitcoin. However, this rate of change in the price is not only limited alone on how the value of the Bitcoin varies as there are other factors that is considered to be the cause of such change.

[shittypro]

I'm enjoying the different points of view that have already shared in this threads , will help discussion very rich with vital information . Just like most field of endeavor is bound to different school's of thought all of which help to advance the course of knowledge . Being student economics, I'm just want to know how it works the concept of this inflation and deflation in practical terms that help to improve the economy of nations and don't limit ourselves to definition and Symantec terms

[kniheant]

eventually the bank is merely to comply with its mean reserve requirement. It just must own the 900$ when somebody else pays the check, if it isn’t at the same banks.

[Hasbro27]

the information you provide is very good, and the explanation is easy to understand, and very useful for determining or predicting price movements in the market, especially for beginners like me who learn to trade cypto currency

[IriskaLate]

I think that there will be a natural growth of bitcoin and highly dependent currencies. The price is formed as demand for it - the demand can depend on the news around the crypto currency. This has already been-positive news (for example, the adoption by some country of the law on the legalization of crypto-currency transactions) and negative (ban on trade, etc.) are heading the course.

[endaiin]

Economic down because centralized system, now time for crypto to fix that mistake, crypto is the future...

[Watsmaker]

If I'm an intermediate and all values of the apple are static, then of course I get part of the value creation.

But you can also see this differently.

Suppose that yesterday, I really wanted to possess an apple.  I bought an apple for 6 eggs, and I valued it 10 eggs.  So I had a value creation of 4 eggs for that.

However, today I realize that I don't like having an apple any more.  I value the apple today only 2 eggs.   I now sell that apple to you for 6 eggs.  I have AGAIN a value creation today of 4 eggs by this act.

If you have valued an apple all the time 8 eggs, then you could have bought it directly yesterday for 6 eggs (market price) and gained 2 eggs of value.  When you buy the apple from me you also pay 6 eggs, and you gain 2 eggs of value.

So if you directly buy the apple, you win 2 eggs and I, nothing.  "total gain 2 eggs"

If I buy the apple, and then sell it to you, I win 4 eggs yesterday, 4 eggs today, and you win 2 eggs in value.  "total gain 10 eggs".

You can say: yes, but your change in mood made you LOOSE 8 eggs.  No.  Value is only instantaneously and subjective.  I cannot compare value to me yesterday, with value to me today.  I can only say, at each instant, what I value and what I don't value.

Appreciation changes.  Subjective value changes.

[Andreina0107]

Bitcoin is a great way to invest, because there are limited amount of it. There is no inflation, conversely, the price goes up.