Inflation and Deflation of Price and Money Supply

[lilit]

Bitcoin is very volatile and the market movements are faster compared to fiats.

Yes, bitcoin is totally fluctuate so fast unlike to dollar.
This is why we love bitcoin, the fast movement of its value. We need do not need to worry increasing will be more this year for sure. The upwards trend of bitcoin always seems to be good sign for bitcoin.

Agree , this consolidation of 1000$ , strong position , to keeping up tendence

That's just not think that inflation and deflation can affect bitcoin. Crypto currency is independent, and all fluctuations in the market are caused by the demand for bitcoin, and equally because of the manipulation of traders and large whales, bitcoin. I see no other options.

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[kynaz]

@STT

Real price change occurs when money is not involved.

I will explain with an axample:

Assume;
1 beer = 1 apple = 1 hr work = 1 orange = 1 bread.  

If quantity of beer increased by 100%  in the market, real inflation occurs like this:
2 beer = 1 apple = 1 hr work = 1 orange = 1 bread

When money involved price change does not affect anything.

Assume;
$1 = 1 beer = 1 apple = 1 hr work = 1 orange = 1 bread

If quantity of $ increased by 100%  in the market, real inflation occurs like this:
$2 = 1 beer = 1 apple = 1 hr work = 1 orange = 1 bread

Since $ is not a real thing, real life didn't change by quantity of $.
Money when used as a means of exchange is just a virtual tool. Therefore if you price everything in money (as it's done everywhere for simplicity)  your pricing system, inflation, deflation are imaginary.

Lol, your comparing is very funny , dude. But you can't compare things like that , 1 hour work = 1 bread=1 orange ? Really ? HaHaHa. you should compare everything into 1 currency so everything will be more easy to image . but 1 more time, it's funny hahaha .

[X7]

Economic multi functionallity is needed for the price to not be revolving around scarcity.

At the moment the only thing money is good for is to be used as a medium of exchange or a good or service, it serves no other value.

Should we create a system where that is just a moving part, then we would create function beyond just the that which would impact the value as well.

Scarcity should not drive the value on things, it is a complete lack of abundance - which we can see based on natural systems all around us is not a sustainable design. Abundance is an inbuilt function in everything we analyse in the natural world.

From Germination to Hydrology right the way back up to Photosynthesis

[uchiha]

GBPUSD potentially continue to move sideways in the European session, but break down 1.2500 support will trigger pressure down towards the next support around 1.2450.

[EthSports]

how can any debt based economy survive a endless deflation? the problem is the system based on debt, not the inflation

[quzai]

The strengthening of the dollar as well as political risk in France is likely to press down the EURUSD pair in Asian session testing to the support level at 1.0680.

[ppc.pt]

Moral of the story, deflation tends to be a good thing, inflation tends to be a bad thing, despite what happened in the 20s...

[Podgor]

The richest and the most powerful people buy gold now.

[gollygosh]

One asteroid will put them out of business - http://www.dailymail.co.uk/sciencetech/article-4128582/Nasa-plans-explore-expensive-asteroid.html     

[Promth3us]

Moral of the story, deflation tends to be a good thing, inflation tends to be a bad thing, despite what happened in the 20s...

This could be debatable depending on perspective. Certainly extreme inflation is a bad thing. However, one could argue that low (1% to 2%) inflation is acceptable and arguably a good thing. It spurs spending and investment, overall promoting economic activity. Value is higher now than it will be in the future so it causes one to not hold onto cash (or spend it). Which is exactly why the Fed has a 2% inflation target. Low inflation spurs spending, investment and economic activity. Economic theory would suggest that deflation just causes people to hoard "cash" and not spend since value will be higher in the future, so you forgo spending now for spending later. Which is what you see a lot of bitcoiners doing now. This deflationary aspect of bitcoin is a primary driver as to why so many people are seeing Bitcoin as an investment asset. I'd argue that more people are holding onto bitcoin more so than using it as a means of "money".

[morlun]

how can any debt based economy survive a endless deflation? the problem is the system based on debt, not the inflation

Spot on. It cannot survive it.

[Underwoods]

Well.... It's not so hard to tell why Bitcoin becomes interesting in a time of deflation; When volks see that in the future they can buy more products with their current amount of fiat, they will save it. Nothing more than intertemporal exchange.Investing it in BTC becomes more interesting.

The more interesting discussion can be about the question whether primary liquidity will be transformed in secondary liquidity, and the narrow money will decrease, since we see Bitcoin as a currency but a lot of institutions don't.

[Milyonarya]

Inflation occurs when the prices of goods and services rise. Deflation occurs when prices decrease. Balancing the two is delicate, and an economy can quickly swing from one to the other. When goods and services are in such high demand that their availability drops, inflation ensues. Consumers will pay more for items they want, so manufacturers charge more.

[ivanpoldark]

This is why we love bitcoin, the fast movement of its value.

I'm not sure that fast movement of bitcoin value and price is such a good thing. When you trade with altcoins and their price goes down due to fast growth of bitcoin price, you can loose a lot of money at railway speed.

[kpcian]

That's a great post.
That kind of writing helps us to know about real economics. If we can gather knowledge about money's characteristics in market then we would be more capable to invest or trade in real or virtual market.
Thanks for the post.

[NLGer]

how can any debt based economy survive a endless deflation? the problem is the system based on debt, not the inflation

Spot on. It cannot survive it.

True, but they can print money till they run out of paper and ink.

[rosyidman]

An inflation must happen and can not be avoided, depending on market movements, must be smart in making decisions

[Makeone]

Hi,

There seems like there has been a bit of confusion regarding bitcoin's deflationary nature and the problems that brings, I don't think remaining in denial is going to help us develop something really great here. I did however see some posts explaining that problem in depth to the naysayers quite well and TE (the economist) has a great article about the topic.

So as opposed to reiterating the same points brought up by others I'd like to discuss the topic of the negative externalities facing a deflationary currency. To be fair I don't expect there to be the driving issues facing BTC and crypto in general for quite some time, these are issues that currencies face.

• Discourages spending and investment

The fact that there is an expected return in deflationary currencies means that the return on investments and spending are always evaluated proportionally relative to the return it could have been generating passively. The implications of that are obviously huge and without solving that issue we will never really have a replacement for any of the currencies around.

[noone000]

Hey guys, I was kind of curious about the value of the bitcoin. I understand the basics of economics and how the price of money is determined by the supply and demand for it, but I am not completely sure why the price of bitcoins continues to rise. Is it because the demand of bitcoins is continually increasing at a staggering rate? Or perhaps people are trading their bitcoins for other currencies faster than it can be mined, thus reducing the supply? Some clarification would be helpful.

[gregory51gosh]

I wonder how to calculate the 'book' value vs. trading value of 1 BTC.

Book value of BTC's shold be the sum of money put into their production since the start (as calculations made by the computers etc.) minus 20% amortization yearly. So this amount divided into BTC's should be 1 BTC book value. And then we could compare to the trading value (present).

Simplified example with non-real values:

Year 1 - used 20 cents for electricity to produce 1 BTC. Book value of 1 BTC = 20 cents.
Year 2 - used 21 cents for electricity to produce 0.9 BTC. Book value = [(0,8*1*20) + (1*0.9*21)] => 2BTC book value = 16 + 18,9 = 34,9 cents=> 1BTC = 17,45
Year 3 - used 25 cents for electricity to produce 0.5 BTC. Book value = [(0,6*1*20) + (0.8*0.9*21) + (1*0.5*25)]+  => 3BTC book value = 12+15,12+12,5 = 39,62=> 1BTC = 13,20
and so on.. (assuming not selling the BTC's, short period od production etc.).

Thesis:

no. 1. If the difficulty increases over some level, the book value will start to decrease so the disproportion over book and trading value will be increasing, that is the moment, when BTC value should be lower
no. 2. If we see the BTC as gold, this difficulty increases astronomically the value due to exhausting resources.

Also I wonder how it refers to the general market cap.

What do you think?