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Author Topic: Inflation and Deflation of Price and Money Supply  (Read 590785 times)
Lifestudent38
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July 02, 2019, 09:04:20 AM
 #1241

come to think maybe that reason the price has going straight down it is because a lots of people have bought some bitcoin, and hold 'em for sometime, If no one uses a crypto then they won’t have any value like that.

Or perhaps its market makers taking profits?

Think about it - I own a shop and buy a tomato for $1.00, now I need to sell for $1.35

In the case of market makers its a bit on the reverse side - I sold a tomato for $1.35 now I need to repurchase it for $1.00


Also read the top post - something about supply and demand and all that jazz.... uhm If someone is buying a BTC does that warrant demand > supply because to actually demand and buy 1 BTC there has to be an equal supply of 1 BTC sold... so demand always equals supply  Huh
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July 06, 2019, 05:52:07 AM
 #1242

If youre living in the developing nation, Inflation is just a normal thing 
Steven123301
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July 08, 2019, 12:01:27 PM
 #1243

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
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August 06, 2019, 12:38:46 AM
 #1244

Inflation is just a normal in developing countries, but if this inflation is already uncontrollable, it's not just an infalation, it's now called hyper inflation, just like what happened in venezuela, but thanks in cryptocurrency to save their collapsing economy. anyway, venezuela is not totally recovered yet
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August 18, 2019, 11:57:41 PM
 #1245

That being said, isn't bitcoin essentially a short on the inflationary nature of fiat ?
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August 25, 2019, 11:58:54 AM
 #1246

We have around the World Economic regression.
So but btc price is 10k.

If the Government and banks Will start printing money Again the btc price Will Go high.







Just Think about that Economic regression times the assets are cheap so the btc is cheap Now... Once the European USA uk Will cut rates and printing money the btc price Will be at least 30k.




Just Think about the fact that in a Economic  correction times we have assets all ready expensive but not as expensive as They could be
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August 26, 2019, 09:00:57 PM
 #1247

There was a nice and easy understandable read by Peculium-team covering the inflation-issue (more or less global):

Quote
In our first part we explain how inflation is melting away your savings where the inflation rate is higher than the interest rate you receive on your savings.

Now that you know about the problem, we are also here to provide you with the solution!
____

How to beat inflation with AIEVE – Your Artificial Intelligence companion for a brighter future:

https://peculium.io/blog/how-to-beat-inflation-with-aieve-your-artificial-intelligence-companion-for-a-brighter-future
____

As a reminder, here you may find the article explaining inflation vs. interest-rates:  https://peculium.io/blog/does-it-still-make-sense-to-put-money-into-a-savings-account

Source: https://t.me/peculiumANN/340

Definitely a topic, that A) near to nobody learns about in school and B) is an quite important factor when speaking about savings/values in future etc., thus B) that everybody should (at least superficial) should be aware of.

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August 28, 2019, 01:54:05 PM
 #1248

Man, thank you! It was super useful. I just found out this topic from Google Search and didn't expect that this will be so useful.
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September 01, 2019, 08:32:36 PM
 #1249

If youre living in the developing nation, Inflation is just a normal thing 
Which part of the developing country are leaving that do take inflation as a normal thing to them? Inflation has a both positive and negative effect on the economy and the people leaving in a country that are unable to control there inflation pressure in there economy, and I don't believe any developing countries will take inflation as a normal thing to them.
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September 01, 2019, 10:47:43 PM
 #1250

Inflation is When economy is Up!

When economy is bad and we have regression zone then we have low inflation rate.



Its Constant Economic Circle, economy Up and down Up and down....


Everytime When we want to boost economy Again and Again we print More money economy is going better inflation rate are going higher prices are going Up... And debt is growing bigger and bigger.



BUT NOONE SEEMS TO BE paying back the debt..
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September 02, 2019, 12:58:31 AM
Last edit: September 02, 2019, 01:18:14 AM by STT
 #1251

That being said, isn't bitcoin essentially a short on the inflationary nature of fiat ?

Its an interesting idea but we have a opposing possibilities here.   First Bitcoin is expanding in price because the rate of change in FIAT is greater then BTC which has a reducing amount available each year.    Presuming both have at least equal demand for payment usage, etc.
     However there is also the idea that Bitcoin as an emerging technology and not yet established by its own revenue and regular business quite yet, like many internet type startups its actually benefiting from the loose monetary outcome which allows cheap financing to occur and encourages risk based investment.    The base rate being so low right now, establishes the safest money with little returns and especially if we consider personal inflation experienced might be far higher then measured or stated by government for GDP purposes.  
  This low base rate encourages risk taking, what could happen is as dollar falls it actually becomes more difficult to gain interest in risky projects.   The flow of excess easy money from base rates that do not match or surpass inflation could reduce, this brings us back from inflation to a currency standard in decline.   Many people presume well Dollar will pass its business onto BTC but thats not a given, its not even likely imo.  

What I think is most likely is that if we are talking about Dollar being replaced, is that another FIAT standard takes over.   This could be another nation with alot of trade done or it might be an agreed standard similar to EURO.   EURO is weak but it is at least backed by Germany in part, so I don't see that as failing so much but it might be challenged and not seen as worthy as taking over from dollar.    The point being if BTC loses its source of excess dollar funding it could be more challenged in price, not directly inversely proportional to Dollar decline.   I don't believe it will be that simple, alot of money will likely go into gold and many different standards.
   The ultimate result of inflation, loose standards and debt which fails to repay its principal value is a deflationary effect, this could be a harsh winter for BTC.

I don't think that scenario is any time soon but inflation means instability and its hard to predict the outcomes, there's not a certain winner.  Likely all of society will suffer some losses, inflation especially when its out of control is not a positive.
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September 11, 2019, 01:46:39 AM
 #1252

With regards to BTC replacing FIAT, it will likely need to be used in a large amount of trade invoicing.  I'm not 100% sold on whether or not that will actually be a good thing for the price of BTC in the long-run.  Typically, you don't want to use something that has high appreciation in order to pay for goods and services, so if BTC does become a replacement for FIAT in terms of invoicing trade, that means that people likely aren't expecting any additional returns. 

On a separate topic, while BTC could be a hedge against inflation, I'm a little worried about the other side of the coin.  I'm talking about deflation.  I haven't looked into it as much, but my understanding of the inflation and deflation are along the lines of:

Inflation: Becuase it eats away at your cash, you are essentially incentivized to spend your money as it will be worth more now than in the future.  This spending will presumably lead to growth, job creation, etc., but can also have negative impacts such as borrowing, since the money your returning in the future could be worth less.  Maybe this ultimately is why we have boom and bust cycles, where people borrow too much and this eventually leads to a recession or economic collapse

Deflation: I guess if you think about it as the opposite of inflation.  People believe their money will be worth more in the future, or that goods and services will be cheaper if they hold off on their purchases until next year.  Could this lead to a situation where people hold off spending, which decreases growth, and leads to an economic death spiral? 

I don't know which is worse, the possibility of hyper-inflation or depression
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September 30, 2019, 01:25:54 PM
 #1253


Or perhaps its market makers taking profits?

Think about it - I own a shop and buy a tomato for $1.00, now I need to sell for $1.35

In the case of market makers its a bit on the reverse side - I sold a tomato for $1.35 now I need to repurchase it for $1.00


Also read the top post - something about supply and demand and all that jazz.... uhm If someone is buying a BTC does that warrant demand > supply because to actually demand and buy 1 BTC there has to be an equal supply of 1 BTC sold... so demand always equals supply??
gaston castano
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October 01, 2019, 09:21:16 AM
 #1254

If youre living in the developing nation, Inflation is just a normal thing 
Which part of the developing country are leaving that do take inflation as a normal thing to them? Inflation has a both positive and negative effect on the economy and the people leaving in a country that are unable to control there inflation pressure in there economy, and I don't believe any developing countries will take inflation as a normal thing to them.


if they think it's not normal of course they will complain, but what we have seen up to now seems to have become a normal thing, inflation does occur from year to year everyone might know that, and maybe as you say maybe some countries poor, but for developing countries I think that's acceptable, I live in developing countries, and yeah I often hear the news when the price of goods goes up every year, and it only happens a little later then as usual, so I think they can accept it.

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dnprock
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October 15, 2019, 05:17:39 PM
 #1255

I posted this article in Altcoin Discussion. It's related to this discussion.

Original post: https://bitflate.org/post/2019/10/10/the-next-big-thing-in-crypto-using-inflation-to-create-stablecoin.html

This is my view of the next big thing in crypto. Bitcoin is digital gold. It has a limited supply of 21 million coins. Therefore, its price fluctuates. Stablecoins are cryptocurrencies designed to avoid price volatility. Existing stablecoins are issued by centralized authorities. This mechanism defeats the ethos of cryptocurrency. In order to access decentralized cryptocurrency, we need to rely on centralized authorities to issue digital stablecoins.

A New Look at Inflation

Cryptocurrency has started and become successful by embracing Austrian Economics. Bitcoin’s limited supply means every person on planet Earth can only own a small fraction of a bitcoin. When Bitcoin reward reaches 0 around year 2140, there will be no coin. If there is still demand for Bitcoin, its price will be: buyer demand / supply = infinite.

How do we address this conundrum? There is currently no easy way. For cryptocurrency to gain adoption, we can’t have a money system with limited supply. That is not how the world works. Even our universe inflates. To solve this paradox, we need to explore the role of inflation.

People lament about inflation robbing your purchasing power. But historically, economies tend to grow with currency inflation. It is hard to find past record of economies thriving with deflation. Inflation is bad when it is high and/or when money is printed without people’s knowledge and approval. Otherwise, it can be a force for growth. With cryptocurrency, we can design a currency with a known and deterministic inflation rate.

Deflationary versus Inflationary

Economies always have deflationary and inflationary assets. People often overlook this. Gold, real estate, moat, competitive advantages are some examples of deflationary assets. Inflationary currencies serve as a medium of exchange. They are used for transactions. Bitcoin was created in response to the 2008 economic crisis. It exists and thrives because of quantitative easing, a type of inflating monetary policy.

Existing stablecoins are inflationary digital currencies. They are pegged to fiat currencies. In the future, there will be two kinds of cryptocurrencies: deflationary and inflationary. For cryptocurrency to gain more adoption, we need a better kind of inflationary digital currency.

Bitflate - Digital Native Decentralized Stablecoin

Bitflate is a new kind of cryptocurrency. It is a Bitcoin fork with an inflation rate of 7% per year. In its first four halvings, Bitflate blockchain will create 19.3 million coins. After that, its supply will inflate at 7% per year. Here’s the block reward schedule for the first 10 halvings:

0: 50
1: 25
2: 12.5
3: 6.25 (end of halving)
4: 6.65 (start of inflation 7%)
5: 7.02
6: 7.51
7: 8.04
8: 8.60
9: 9.20
10: 9.85

With inflation, there will not be a pressure to push price up too high. Bitflate blockchain uses Proof of Work. It issues a deterministic and limited number of new coins. Therefore, price will not drop too low. The goal of Bitflate is to create a digital token that people can use for transactions.

Bitflate price will not be as stable as pegged stablecoins. It has significant advantages: digital native and decentralized. Bitflate will be more suitable for transactions than deflationary cryptocurrencies. It opens a new gateway to financial possibilities. In this future, we, the people, are in control.

PS: Bitflate is now trading on Unnamed Exchange (https://bitflate.org/exchange/). Join our discord community (https://discord.gg/utnEyp8) for update.
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November 01, 2019, 04:43:23 AM
 #1256

Inflation is just a normal in developing countries, but if this inflation is already uncontrollable, it's not just an infalation, it's now called hyper inflation, just like what happened in venezuela, but thanks in cryptocurrency to save their collapsing economy. anyway, venezuela is not totally recovered yet

This is the whole problem that inflation turns from necessary to destructive for the economy. It is clear that with a developing economy, the amount of money from citizens increases, and they can afford to buy more. That is, demand increases, so there are more goods and services to meet it. Enterprises produce more products, the list of services provided to citizens is growing. Hyperinflation, which occurs when the state budget deficit and with a huge external debt, is a factor that destroys the economy of any country. A competent domestic and foreign policy is needed to keep inflation in balance and not get out of control. In our world, this is difficult to achieve because of corruption and destructive economic models between countries, which include sanctions, etc.

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November 17, 2019, 09:55:51 PM
 #1257

Which effects and human behaviour reflecting the markets in a recession : https://youtu.be/SV2wvInWDPA
Very interesting!
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November 30, 2019, 10:20:30 AM
 #1258

Inflation is when prices rise, and deflation is when prices fall. You can have both inflation and deflation at the same time in various asset classes. When taken to their extremes, both are bad for economic growth, but for different reasons. That's why the Federal Reserve, the nation's central bank, tries to control them.
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December 03, 2019, 08:18:20 PM
 #1259

Who else believes that we'll still have inflation after all Bitcoins have been mined? It doesn't look as if the ecosystem will be able to sustain itself from fees alone, even if the technology would be two times more efficient each year...
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December 03, 2019, 10:30:48 PM
 #1260

Who else believes that we'll still have inflation after all Bitcoins have been mined? It doesn't look as if the ecosystem will be able to sustain itself from fees alone, even if the technology would be two times more efficient each year...

I think there's a chance that Bitcoin will fork into a low inflation rate (0.5% to 1%) and a zero inflation (current). Both Bitcoin chains remain Store of Value. In the low inflation chain, some portion of fees gets shifted to mining.
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