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Author Topic: Inflation and Deflation of Price and Money Supply  (Read 505935 times)
deisik
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April 30, 2014, 12:26:06 PM
 #241

If everyone hoarded bitcoins.
Bitcoins will end up up up.

And one day someone finally decides to sell her stash and it all comes down down down... Grin

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Even in the event that an attacker gains more than 50% of the network's computational power, only transactions sent by the attacker could be reversed or double-spent. The network would not be destroyed.
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May 05, 2014, 11:22:21 AM
 #242

Hello
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2432367
 Smiley
ellen_me
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May 06, 2014, 02:57:56 PM
 #243

Economics subject looks more exciting here than books. Tongue
Definitely if the value of BTC is high, there will be less BTC needed for a commodity as long as the price is not getting higher too.

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May 06, 2014, 08:17:31 PM
 #244

If everyone hoarded bitcoins.
Bitcoins will end up up up.


Each time the price goes down it shakes out the weak hands and more btc end up with the hoarders and users

deisik
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May 06, 2014, 08:26:53 PM
 #245

If everyone hoarded bitcoins.
Bitcoins will end up up up.


Each time the price goes down it shakes out the weak hands and more btc end up with the hoarders and users

This is just wishful thinking. If it were so, the price wouldn't go down at all! Cool

boumalo
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May 07, 2014, 07:51:39 PM
 #246

If everyone hoarded bitcoins.
Bitcoins will end up up up.


Each time the price goes down it shakes out the weak hands and more btc end up with the hoarders and users

This is just wishful thinking. If it were so, the price wouldn't go down at all! Cool

It is a fact that when the price goes down the members that believe less sell and the members that believe in Bitcoin most don't sell

deisik
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May 07, 2014, 07:54:47 PM
 #247

If everyone hoarded bitcoins.
Bitcoins will end up up up.


Each time the price goes down it shakes out the weak hands and more btc end up with the hoarders and users

This is just wishful thinking. If it were so, the price wouldn't go down at all! Cool

It is a fact that when the price goes down the members that believe less sell and the members that believe in Bitcoin most don't sell

And so what? If the price goes down, it just means there're more sellers than buyers per unit of money (and the other way round). As simple as that... Cool

boumalo
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May 08, 2014, 10:27:09 AM
 #248

If everyone hoarded bitcoins.
Bitcoins will end up up up.


Each time the price goes down it shakes out the weak hands and more btc end up with the hoarders and users

This is just wishful thinking. If it were so, the price wouldn't go down at all! Cool

It is a fact that when the price goes down the members that believe less sell and the members that believe in Bitcoin most don't sell

And so what? If the price goes down, it just means there're more sellers than buyers per unit of money (and the other way round). As simple as that... Cool

And it shakes the weak hands

deisik
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May 08, 2014, 01:17:20 PM
 #249

If everyone hoarded bitcoins.
Bitcoins will end up up up.


Each time the price goes down it shakes out the weak hands and more btc end up with the hoarders and users

This is just wishful thinking. If it were so, the price wouldn't go down at all! Cool

It is a fact that when the price goes down the members that believe less sell and the members that believe in Bitcoin most don't sell

And so what? If the price goes down, it just means there're more sellers than buyers per unit of money (and the other way round). As simple as that... Cool

And it shakes the weak hands

Price going down confirms there're more weak hands than strong hands in the market at the moment...  Roll Eyes

benzone
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May 08, 2014, 10:47:01 PM
 #250

Inflation is the general increase in prices, so it is the goods that you buy whose price will inflate, rather than the currency used to buy the goods.

Some people want to be different and say that inflation is an increase in money supply (monetary base before all). It may or may not influence the prices... Cool

Those are two possible definition of inflation. Monetary inflation and price inflation.

On this forum, yes. Anywhere else (any economics literature...), no. This is like telling a physicist there are two kinds of temperature, one based on molecule vibration and the other based on things being hot.
boumalo
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May 08, 2014, 11:01:25 PM
 #251

If everyone hoarded bitcoins.
Bitcoins will end up up up.


Each time the price goes down it shakes out the weak hands and more btc end up with the hoarders and users

This is just wishful thinking. If it were so, the price wouldn't go down at all! Cool

It is a fact that when the price goes down the members that believe less sell and the members that believe in Bitcoin most don't sell

And so what? If the price goes down, it just means there're more sellers than buyers per unit of money (and the other way round). As simple as that... Cool

And it shakes the weak hands

Price going down confirms there're more weak hands than strong hands in the market at the moment...  Roll Eyes

There may be more sellers at the moment but the coins are probably going to bigger believers which will prepare for the next spike up in price

deisik
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May 09, 2014, 07:29:14 AM
 #252

And it shakes the weak hands

Price going down confirms there're more weak hands than strong hands in the market at the moment...  Roll Eyes

There may be more sellers at the moment but the coins are probably going to bigger believers which will prepare for the next spike up in price

You guess, when you are selling something, what you sell goes to a bigger "believer" in it than you. This is the reason why trade is ever made possible at all. Whether it promises a better price in the future or not still remains to be seen... Cool

bitlyme
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May 09, 2014, 07:47:07 AM
 #253

Right that it is quite confusing.  Tongue
Thanks for explaining and giving examples. Other posts here are also great for backup ideas.
ZephramC
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May 10, 2014, 05:20:42 PM
 #254

Inflation is the general increase in prices, so it is the goods that you buy whose price will inflate, rather than the currency used to buy the goods.

Some people want to be different and say that inflation is an increase in money supply (monetary base before all). It may or may not influence the prices... Cool

Those are two possible definition of inflation. Monetary inflation and price inflation.

On this forum, yes. Anywhere else (any economics literature...), no. This is like telling a physicist there are two kinds of temperature, one based on molecule vibration and the other based on things being hot.

You agree that using "inflation" when you mean "price inflation" is like defining temperature as "things being hot", right?   Smiley

... Actually, very often judgments like: "There are several ways to define a thing, but some definitions are better (more scientific, more reasonable, more sane, less stupid,...)" is calling for flamewars.  Wink
Razick
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May 14, 2014, 01:11:12 AM
 #255

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

Well said. One thing I might add is that the wild price fluctuations we are seeing are not (mainly) the result of changes in demand for Bitcoin as a currency, but changes in demand for Bitcoin as a security due to the expectations of future prices. If the price returned to $1,000 next Friday, it would not (necessarily) be because Bitcoin is suddenly seen as a better currency, but because traders expect that the price will rise in the future.

Conversely, although the Mt.Gox failure did justify a reduction in value, much of the loss was because of traders anticipating a negative market reaction and thus causing a negative market reaction.

It's very hard to distinguish what is due to fundamentals, and what is due to expectations of future prices. I think it's safe to say that Bitcoin isn't 36 times as useful now as it was last year, nor half as useful as it was a few months ago. The problem right now is that no one knows Bitcoin's true value so expectations of future prices dominate.

Hopefully this effect will soften over time.



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Pheoxy92
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May 14, 2014, 08:23:20 AM
 #256

I think the reason that the price has going down is because a lot of people have bought in on bitcoin but they don’t use them, If no one uses bitcoin they won’t have any value. Simple as that ;Wink

I am a dreamer Cool
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May 15, 2014, 03:52:43 AM
 #257

真的很高深啊!
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May 18, 2014, 08:33:51 AM
 #258

Yes, interesting case. Yet it would not be fully representative of the current (fiat) monetary systems. By observing the system, you change the system (hint at quantum properties (i.e. wave-particle duality)). đá khô
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May 20, 2014, 01:21:14 AM
 #259

What happens if the last bitcoin got discovered?
Than there is no real inflation anymore...
Does that mean, that there isn't any currency which works for ever? I think that every currency need to have a big crash with a full restart from time to time, because endless economic growth is just impossible.
deisik
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May 20, 2014, 08:22:03 AM
 #260

What happens if the last bitcoin got discovered?
Than there is no real inflation anymore...
Does that mean, that there isn't any currency which works for ever? I think that every currency need to have a big crash with a full restart from time to time, because endless economic growth is just impossible.

You forget that inflation (i.e. price inflation) doesn't depend on money supply only ("last bitcoin got discovered")... Cool

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