Inflation and Deflation of Price and Money Supply

[ZephramC]

So when prices go down, its a bad thing because consumers will hold off on spending because it might be cheaper tomorrow?

RealBitcoin spoke about price of bitcoins expressed in fiat money.
If you mean prices (of just about anything) expressed in bitcoins then you are speaking about price deflation. This means that some consumers will hold off some of their spending. Whether this is bad or good thing can not be decided.
It depends where you put boundary between responsible saving and selfish hoarding. And where you put boundary between "only the best goods and investments should survive" and "economy and investment should be stimulated by gradually destroying value of people's money (bitcoins) and forcing them to spend and support consumption".

Think about situations and goods where prices go down (computers, smartphones, ...). Is it a healthy market? Would it be healthy market if prices went down much faster?

[1714303802]

1714303802

[notaek]

Does this price inflation and deflation depend fully on Bitcoin days destroyed? I guess it also plays an important role because one may send his own coins between different addresses trying to show the network that several transactions are being made?

Good question! Bitcoin days destroyed are a better indication of how much real economic activity is occurring on the bitcoin network since it was realized that total transaction volume per day might be an inappropriate measure of the level of economic activity in Bitcoin as someone could be sending the same money back and forth between their own addresses repeatedly. So, if a person hoards some bitcoins for a year or more, the value of bitcoin days destroyed will be more. Similarly in the case of those wallets, whose owner lost his/her private key(s) and are unable to withdraw them anymore! This will lead to the gradual price rise. But if everyone starts selling bitcoins sooner, then the total number of bitcoin days will also reduce leading to lowering of BTC/USD price. This eventually influences in the inflation and deflation towards total monetary (=bitcoin) supply.

[painlord2k]

Must be noted that Bitcoin Days Destroyed" give the same result if 1 Bitcoin ten days old is moved ten times in a day or just one (the last movement).
The number of transactions is at least as much important.
The BDD is more interesting as an indicator for the mobilization of more or less coins kept as savings.
People have incentives to mobilize coin (and exchange them with something else) when they expect the value to fall or, the reverse, someone give discount to buyers with bitcoin for loading bitcoin in exchange for an asset he believe will depreciate.

[Nunu]

Why do a lot of people go for bitcoin when these, too, go under inflation and deflation of price and money supply?

What is the difference? I really don't get why people are crazy about bitcoin. 

[Magnesium Coin]

Does this price inflation and deflation depend fully on Bitcoin days destroyed? I guess it also plays an important role because one may send his own coins between different addresses trying to show the network that several transactions are being made?

Good question! Bitcoin days destroyed are a better indication of how much real economic activity is occurring on the bitcoin network since it was realized that total transaction volume per day might be an inappropriate measure of the level of economic activity in Bitcoin as someone could be sending the same money back and forth between their own addresses repeatedly. So, if a person hoards some bitcoins for a year or more, the value of bitcoin days destroyed will be more. Similarly in the case of those wallets, whose owner lost his/her private key(s) and are unable to withdraw them anymore! This will lead to the gradual price rise. But if everyone starts selling bitcoins sooner, then the total number of bitcoin days will also reduce leading to lowering of BTC/USD price. This eventually influences in the inflation and deflation towards total monetary (=bitcoin) supply.

Thanks for the explanation

[mouneshwar123]

Why do a lot of people go for bitcoin when these, too, go under inflation and deflation of price and money supply?

What is the difference? I really don't get why people are crazy about bitcoin. 

Some people see a lot of potential in bitcoin and consider it as a long term investment (I do)

and some play trading with the increase and decrease of the price to make daily profit.

[RealBitcoin]

RealBitcoin spoke about price of bitcoins expressed in fiat money.
If you mean prices (of just about anything) expressed in bitcoins then you are speaking about price deflation. This means that some consumers will hold off some of their spending. Whether this is bad or good thing can not be decided.
It depends where you put boundary between responsible saving and selfish hoarding. And where you put boundary between "only the best goods and investments should survive" and "economy and investment should be stimulated by gradually destroying value of people's money (bitcoins) and forcing them to spend and support consumption".

Think about situations and goods where prices go down (computers, smartphones, ...). Is it a healthy market? Would it be healthy market if prices went down much faster?

Hoarding = Insurance.

It is never evil to have supplies and reserves that could be used in an emergency.

Stupid keynesians wants us to have 0$ in our pocket and constantly take loans after loans. Its an evil economic theory.


I rather prefer to have 1 mountain of gold than to have 0$ in my pocket.

[kyrios_]

RealBitcoin spoke about price of bitcoins expressed in fiat money.
If you mean prices (of just about anything) expressed in bitcoins then you are speaking about price deflation. This means that some consumers will hold off some of their spending. Whether this is bad or good thing can not be decided.
It depends where you put boundary between responsible saving and selfish hoarding. And where you put boundary between "only the best goods and investments should survive" and "economy and investment should be stimulated by gradually destroying value of people's money (bitcoins) and forcing them to spend and support consumption".

Think about situations and goods where prices go down (computers, smartphones, ...). Is it a healthy market? Would it be healthy market if prices went down much faster?

Hoarding = Insurance.

It is never evil to have supplies and reserves that could be used in an emergency.

Stupid keynesians wants us to have 0$ in our pocket and constantly take loans after loans. Its an evil economic theory.


I rather prefer to have 1 mountain of gold than to have 0$ in my pocket.

Some spending is necessary.. So maybe a hybrid system?

[Magnesium Coin]

Some spending is necessary.. So maybe a hybrid system?

What are you trying to interpret by saying "Hybrid System"?

As if you want the Bitcoin protocol to be divided into two parts: One for spending and one for hoarding?

Grow up dude! Your comment is not making any sense at all...

[RealBitcoin]

Some spending is necessary.. So maybe a hybrid system?

What are you trying to interpret by saying "Hybrid System"?

As if you want the Bitcoin protocol to be divided into two parts: One for spending and one for hoarding?

Grow up dude! Your comment is not making any sense at all...

Yep, bitcoin is for hoarding and storing wealth. You can spend it, but bitcoin holders will be promoted financial convervativeness.

There is Doge for the keynesians, it is inflated forever and its worthless, just like fiat

[bhokor]

Value of a store of value  depends of various elements
- Aceptance
- Good and services which can de acquired
- expectations about future prices

[Temo58]

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.

[maciato]

This information is very useful to me who are beginners, because I've learned at this forum,

[mamadmankan]

Value of a store of value  depends of various elements
- Aceptance
- Good and services which can de acquired
- expectations about future prices

   
   

The important point is that the "price of money" is depending on this demand for store of value (in that particular monetary asset).  That demand will vary according to the mood of people, and also according to the kind of monetary asset that is mostly "in" (that is, what people speculate that others will still want to accept, and at what price, later when they will want to get the value back).
As such, the value stored in a monetary asset is normally fluctuating.  One day there may be a high demand for money, and money will be worth a lot ; the next day, there may be a much lower demand for that kind of money, and it may become almost worthless.
In a fiat system, this is mainly stabilized, essentially by imposing monetary monopoly (merchants are obliged to accept that type of money against their goods and services), and by introducing feedback mechanisms with the central bank, buffering the money offer against the money demand.

[antonio.hernandez]

Hello

I think that inflation is not so natural. To cause inflation should be more difficult over time, while deflation should be natural and should be caused when no new inventions reach the market.

I explain myself, with gold:

Inflation
When gold started to be valuable, there be lots of it on the surface, on the rivers on many places. Now, one needs to mine 1 ton of dirt to have one ounce of gold, and it will be more difficult over time. That is natural, because once a valuable commodity is extracted, it is more scarce in the source and more difficult to get from it.

Deflation
When the market is empty from products, the market needs all of them, and only small number of sources are available, then, the prices go up. But after a while, more and more people have the product and the market begins to saturate. Eventually everyone who is interested in that product have it, so the people starts saving. That causes deflation, because prices needs to drop to attract people that has been not interested on the product at current price.

But then, someone invents something new, and because it is new, it can create a new market, and attract new people that wants it. That reduces deflation to the point that prices start increasing for a while. The equilibrium of new inventions and saturated market is what should mainly control the prices and the availability of money (something valuable and scarce), and the more and more scarce source of the resource should intervene less and less over time in the inflation/deflation cycle.

[RealBitcoin]

Hello

I think that inflation is not so natural. To cause inflation should be more difficult over time, while deflation should be natural and should be caused when no new inventions reach the market.

I explain myself, with gold:

Inflation
When gold started to be valuable, there be lots of it on the surface, on the rivers on many places. Now, one needs to mine 1 ton of dirt to have one ounce of gold, and it will be more difficult over time. That is natural, because once a valuable commodity is extracted, it is more scarce in the source and more difficult to get from it.

Deflation
When the market is empty from products, the market needs all of them, and only small number of sources are available, then, the prices go up. But after a while, more and more people have the product and the market begins to saturate. Eventually everyone who is interested in that product have it, so the people starts saving. That causes deflation, because prices needs to drop to attract people that has been not interested on the product at current price.

But then, someone invents something new, and because it is new, it can create a new market, and attract new people that wants it. That reduces deflation to the point that prices start increasing for a while. The equilibrium of new inventions and saturated market is what should mainly control the prices and the availability of money (something valuable and scarce), and the more and more scarce source of the resource should intervene less and less over time in the inflation/deflation cycle.

Yes it's natural , it's called disinflation, a shrinking inflation rate, just like with bitcoin.

The inflation of bitcoin now is hovering around 8-9%, while after the halving , it will go to ~4% ,and so on shrink until 0

[STT]

I think that would be headline inflation, we know the literal amount of coins.   We do not know the amount of coins circulated exactly in business (not just transfers), we do not know the exact number of users regularly or genuinely requiring bitcoin and so holding onto them. 
If the amount of new users exceeds the new supply of coins via mining, I think we can assume deflation.  The cost of money rises in deflation

deflation should be natural and should be caused when no new inventions reach the market.

The technology sector has deflation for decades now, its naturally making each product more cheaply and refining utility to give more for the price.  So prices fall continually unless or until they raise higher production costs with a new feature in demand.   I think its linked to moores law

Also relevant is hedonic regression which is misconstrued by government to explain rising prices.  The reported inflation figure given is always adjusted by a dept basically politically motivated, everybody here knows how they pay much more over a decade for the exact same goods regardless of apparent low inflation

[expert4knowledge]

Value of a store of value  depends of various elements
- Aceptance
- Good and services which can de acquired
- expectations about future prices

It depends on how many deals are made and you provided some reasons for making those deals and reasons that can increase buy and sell.

[Goms]

The cashless policy that developed countries are trying to establish is one reason that will push up the demand for bitcoins.

[omahapoker]

The cashless policy that developed countries are trying to establish is one reason that will push up the demand for bitcoins.

I dont think it will push up the demand for bitcoins...there is currently no reason to change...
Inflation is a term much maligned in today’s media, but correctly managed it is not necessarily a bad thing.  The European Central bank has as one of its objectives the management of inflation within the Eurozone area and this management is generally accepted as maintaining the inflation rate as close to 2% as is possible.  If inflation begins to rise above this magic figure then the ECB imposes credit restrictions via interest rate management and reels in economic activity back.