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Author Topic: Inflation and Deflation of Price and Money Supply  (Read 522861 times)
octobercoinph
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November 27, 2017, 07:30:08 AM
 #881

Pulling in some quotes that got the discussion started (each has a link to the original):

robocoin, you sound a lot like DoomDumas:
Inflation ?   actual CPI calculated of inflation in terms of the 1980's CPI calculation ?  (it so different !!!)
Sure, the CPI is unusable as a baseline inflation measure for the USD. Even M1, M2, etc. are obviously off.

Bitcoin mining is the opposite of fiat inflation. Looking at a "market cap" can give a first-order approximation of the total amount of fiat currency that has been converted to Bitcoin. If my theory holds, the market cap isn't the cause of any trading, it's an effect, but it does tend to prove that bitcoin mining increases the value of each bitcoin – that wouldn't happen if mining were the same as fiat inflation.
Increased mining does increase the value of each bitcoin since it makes it more expensive to attack the network.  Sure, it's still supply and demand, but this effects the supply(willingness to hold from more security decreases supply) and demand(willingness to hold increases demand).  The fact that the mining process automatically adjusts to keep the generation rate constant keeps the added security from increasing the supply other than the very short term.
Although I didn't specifically name increased security I believe I covered that indirect, network-supporting aspect of mining.
I fear you are ascribing causality here where there is none.  I have seen nothing to suggest mining (i.e creating new currency) 'increases the value of each bitcoin'.  Indirectly of course the process of mining; the fact there is a mining network is what gives bitcoin value therefore it is fair to say without the process of mining the existing bitcoin would be of no value but that is not the same.  The usd value of bitcoin is determined by the balance of supply and demand.  Nothing else.  If it's going up it's because demand is outstripping supply.  Increasing coin production by more mining (if that were not restricted by the process) would increase supply and usd value would decrease.
It was my reading of what sounds was saying that he was referring to the creation of coins aspect of mining.  I may have been mistaken.  sounds?
thoughtfan, we're both talking about supply and demand.

I ascribe the increase in demand to both exchanges and mining.

If mining 25 BTC was solely an increase in supply, the value of BTC would go down. (This is what I understood your argument to be.)

I feel that mining increases the value of each BTC because it reinforces "the way BTC works":

There will come a point when mining isn't profitable and the network could be vulnerable to attack. At that point, we should have this discussion again. Right now, miners get paid to invest in BTC: they're investing hardware, time, and electricity but the effect is still an increase in the demand for BTC. Right now, mining resembles interest payments: leave your resources in the BTC network and you get rewarded, doubly so when BTC appreciates against other currencies.

notme pointed out that mining must be strong enough to convincingly guarantee against attack.

I'm taking it one step further and saying that (for the time being) mining is a lower-risk way to get BTC, exchanging hardware, time, and electricity for BTC. The reward for mining has been high enough that more effort is spent mining than speculating.

Specifically a miner must put their money in hardware, the risk being that the hardware will lose some or all of its value before the miner stops mining. A miner must also take the time to set up, troubleshoot, and maintain their mining equipment, losing the opportunity cost of their time. I hope this explanation makes sense: the miner is investing – operating equipment instead of exchanging USD (or some other currency) for BTC.

Miners want BTC, so they make the investment to get it. Some miners may be solely looking to dump their BTC back into fiat for a (fiat) profit, but that seems to be the exception, not the rule. This is not just because of the trending value of BTC, or the network hash rate would be more closely correlated to the value of BTC. If BTC crashed low enough things might change, but at present miners do it for the BTC.

That's how I think mining increases BTC's value – "the way BTC works for the time being."

- - -

I believe mining is lower risk than exchanging because the rewards are predictable. It's still possible to be stupid and do something like CPU mining, which gets you practically 0 reward and costs you a lot in terms of electricity etc. But assuming miners are rational and capable of evaluating the cost/benefit, and assuming the ASIC vendors get their act together so that supply and demand for ASIC mining hardware evens out, then mining is lower risk because of the fixed startup costs and predictable exponentially decreasing returns. It's possible to lose money on mining, but the variables (difficulty, block reward, network hash rate, mining pool fees, PPS vs PPLNS vs DGM vs POT etc.) are all in the open. The variables that affect you when you speculate on the exchanges are mostly hidden.

The ASIC vendors right now are creating huge pent-up demand which may even be pushing the price of BTC up as some sort of bubble. Ordinarily a rational actor would see this much demand and respond by cashing in on it and selling ASICs until the demand drops back down. Apparently, successfully shipping an ASIC is so hard that there's a sort of speed bump happening right now.

Finally, back to the original discussion, market cap may be an indicator which we can study to understand supply and demand. However, it is not a primary cause of supply and demand or BTC value. If market cap measured in USD was a primary cause of BTC value, then we should all view BTC as a bank to temporarily deposit USD and maybe collect some interest (making BTC a ponzi scheme).

The appeal of having some BTC is not at all the market cap measured in USD. Without speaking for everyone, I believe BTC's appeal and inherent value is secure storage of value coupled with convenient exchange of value. Looking at the market cap is still informative though.

The value of a USD $1 will decrease because USD suffers continuous inflation. The value of 1 BTC will increase for the time being because demand for BTC is increasing faster than supply. And after most of the BTC have been mined, the value of 1 BTC will increase because of the deflationary nature of BTC. But we should definitely have this discussion again at that point, to see what it means for the miners.
As a barometer of healthy money, the world’s best economies have average annual inflation rates below 1.5%.

In economic terms, low to zero inflation is a sign of healthy money because the value of the currency does not fluctuate significantly and is therefore reliable. However, in a country like Argentina, the annual inflation rate is estimated to be close to 40% today.

That means if you’re an Argentinian citizen and you save 100 Argentine Pesos, one year from now the value of those 100 pesos will be worth only 60 pesos relative to the world’s stable currencies. In Argentina, holding money means losing money, and so its citizens are actively looking for alternative stores of value to simply preserve the money they have earned and worked for.

Other examples of problematic economies with high inflation rates are Venezuela, which is expected to have annual inflation of 180% in 2015, and Zimbabwe, where the rate of inflation for the Zimbabwean Dollar was so high that this year they decided to stop printing it and the government is abandoning their currency altogether.

Zimbabwe went through a period of what is known as hyperinflation; their annual inflation rate in 2008 was recorded as high as 11,000,000%. What currencies could citizens from these countries use if not their own? The US dollar? Gold? M-Pesa? Bitcoin?

The reasons for such high inflation rates are complicated and they vary from country to country, but a common theme is that these rates are only found in government-backed fiat currencies.

Governments can lose control of their money in various ways because as with all fiat currencies, their values are tied to the laws of supply and demand. If a government prints too much money then the value of its currency can deteriorate, as seen recently in Zimbabwe, and after WWI in Weimar Germany.

History is full of stories underscored by the failures of money, and if history repeats itself, the future will be no different.

Given bouts of high volatility in bitcoin, it may be difficult to understand how this new Internet currency can act as a store of value. However, comparing the rate of fluctuation of the price of bitcoin to some of the fiat currency examples above, bitcoin contends as a candidate for an alternative currency.

Part of its appeal in countries with strict currency controls is the relative ease in which it can be acquired and used, especially considering all one needs is an Internet connection. Once money is converted into bitcoin, the inflation rates of local fiat currencies do not affect bitcoin holdings and it can be sent anywhere through the Internet for free.

Additionally, no one but the account owner has access to their bitcoin. This is especially important in light of the financial crisis.

In 2013, banks in Cyprus became insolvent but were bailed out by European and international monetary authorities. However, one of the conditions for Cyprus to receive the emergency funding was that bank depositors had to pay part of the tab.

That meant depositors, those who had their money in the banks for safe-keeping, found their individual accounts drained 6–10% by the government, overnight. That would be impossible with digital currency like bitcoin, which makes it valuable for many who reside in parts of the world with deteriorating economies and/or currencies.

Bitcoin also provides an option for those living in countries whose currencies are restricted or not free floating (eg China, Russia), looking to get money out of the country.

Even in the strongest economies the question of how stable certain fiat currencies really are is being tested. In a post-Great Recession world, governments of some of the leading economies decided to essentially print their way back to prosperity in one of the most massive economic experiments ever conducted: Quantitative Easing (QE).

The US led the way with QE in November 2008 with Ben Bernanke, then the head of the Federal Reserve, spearheading the experiment.

After Lehman Brothers collapsed, as the economic debacle unfolded, developed-market central banks became fearful of deflation as opposed to inflation, an experience Japan had been dealing with since the early 1990s.

Deflation is an insidious economic plague where citizens choose to hoard rather than to spend money, expecting lower prices for goods and services tomorrow relative to today.

However, an economy can only improve when its citizens spend money. When companies have too few customers because the masses are scared to spend, employees are laid off in order to cut costs, and unemployment rises, reducing income streams and thus spending power.

It’s a vicious downward spiral, and Mr. Bernanke decided that the best way to stimulate the economy would be to increase inflation and lower unemployment, and he aimed to achieve this through massively increasing the money supply of the US dollar.

The US printed trillions of newly minted dollars over the six year period from 2008 to 2014 in an effort to stimulate the economy. The program worked to a degree, inflating asset prices per design due in part to the US dollar representing the world’s strongest economy as the global reserve currency.

The European Union (EU) has seen the success of QE in the US and has launched its own program to try to aid their unstable economy. The EU will print over 1 trillion new Euros by the time their version of QE is over.

Whether QE works in the long run remains to be seen, but the fact is governments have the power to print as much of their own money as they want. If QE does not work and inflation becomes rampant, there are severe economic consequences as history has shown us.
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November 27, 2017, 02:43:00 PM
 #882

To understand inflation and deflation its key to read the following:

https://mises.org/library/theory-money-and-credit

there is no need of big discussion about it, if you just read this. ^^
inflation is the worst phenomenon because it reduces the purchasing power of money. At the same time deflation is the opposite because prices of goods and services are falling

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November 28, 2017, 09:20:13 AM
 #883

 economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Inflation reduces the real value of money over time, but deflation increases it.
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November 29, 2017, 11:22:14 AM
 #884


In any business, inflation and deflation rate usually relies of the supply and demand trade structure. So, the exchange rate for bitcoins could be influenced on this.
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November 30, 2017, 09:20:29 AM
 #885

for sure you have declared it when you said "there is an inverse relationship of price and value" and that simple sentence will simplify the mission for non-economists to understand the meaning and the the difference between the two terms

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December 01, 2017, 07:53:25 AM
 #886

what ive studied iso far it is that when price inflated money supply increase in order to cover that inflation and wen prices deflated money supply decreases so that demand wll be conrolled

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December 04, 2017, 10:55:53 AM
 #887

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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December 05, 2017, 02:24:03 PM
 #888

You have to stop a bit a consider trustworthiness. You can not have it, neither in real money regard nor costs. In case you by some methods make sense of how to do the abnormal regardless of its trouble, you pick up the structure static and no ground is possible, and you in like manner murder all danger. The wiping out of risk, without any other person changes the structure. So it is doubly unfathomable.

It takes after fishballs in white sauce. If you crush one down, another flies up. The best (and as consistent as you get) is to just leave everything drifting.
Inflation and deflation and the result of several poorly balanced economies, let's pause to think a little we would have a possible solution with the release of credit to all with lower rates. Producers, industry, traders and consumers had access to money with interest for half of what is charged here today and if the government encouraged and did not allow the corporate loan or personal loan to be an extortion, as it is known here, it would not be better for the economy to turn and present more positive numbers

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December 06, 2017, 06:15:42 AM
 #889

Thanks a lot for this post. It cleared my confusion for both.

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December 06, 2017, 02:32:31 PM
 #890

Excellent post, thanks for that. I took ECON201 course at my university and this topic will help me about my that topics.

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December 07, 2017, 12:52:44 AM
 #891

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

This is  a comfortable topic/fun and one that wouldn't boring.
I know that the bitcoin master would be as good as his word.
To me, it`s as if new sight were given to the blind.

fayrouz
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December 07, 2017, 03:36:13 PM
 #892

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

This is  a comfortable topic/fun and one that wouldn't boring.
I know that the bitcoin master would be as good as his word.
To me, it`s as if new sight were given to the blind.

thanks for this post.
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December 08, 2017, 05:10:14 PM
 #893

In case of bitcoin, there is only inflation, because continuously increasing valuation of bitcoin signifies that it would never be stopped in the coming future, this increasing valuation has attracted millions of people to be part of it and the future is not that far away that it would be accepted world wide and might be use for online transactions . The only thing left is bitcoin is not yet centralized by the government, its continuously inflation prices would also make government to legalized it and thus help in making great future

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December 08, 2017, 05:37:34 PM
 #894

Thanks for the article. I think, that Money Supply will be grown up and bitcoin will become more popular.
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December 09, 2017, 05:45:26 AM
 #895


Inflation (Latin Inflatio - swelling) is the process of reducing the cost of money, as a result of which you can buy a smaller amount of goods and services for a certain amount of money after a while. In practice, this is expressed in an increase in prices.
 
The opposite process is deflation - a decline in prices (negative growth). In the modern economy is rare and short-term, usually seasonal. For example, grain prices immediately after harvest are usually reduced. However, deflation is typical for the Japanese economy (within -1%)
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December 09, 2017, 09:58:38 PM
 #896

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.

This part is always interesting and still confusing, you know something like looping. Peoples moves the market, makes the price up and down. Supply and demand determines value is make sense, but then value determines price is confusing. Who actually "converting" the value to the price? Why don't supply and demand straightly determines the price?
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December 10, 2017, 02:00:34 PM
 #897

Everyone is overcomplicating this. Deflation is inherent to Bitcoin as the supply of coins is fixed. In the real economy, this is not the case as the central bank can manipulate it any way it wants. Deflation is as harmful as inflation.

Deflation is bad because it causes people to hold on to their money: why would they spend it if the value of their money keeps getting bigger? And no spending = no growth, so it's bad for the economy.
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December 11, 2017, 09:36:36 PM
 #898

the governament should really do something...it is awful
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December 14, 2017, 03:54:44 PM
 #899

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.

This part is always interesting and still confusing, you know something like looping. Peoples moves the market, makes the price up and down. Supply and demand determines value is make sense, but then value determines price is confusing. Who actually "converting" the value to the price? Why don't supply and demand straightly determines the price?

Everyone who demands it wants it at as low a price as possible.
Everyone who supplies it wants it at as high a price as possible.
The even level between demand and supply determines the value.

However if demand increases for example, the value increases, yet the price is still the same. It then takes time for the price to catch up with where the value is.
As value fluctuates price lags behind it.

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December 14, 2017, 08:00:02 PM
 #900

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.

This part is always interesting and still confusing, you know something like looping. Peoples moves the market, makes the price up and down. Supply and demand determines value is make sense, but then value determines price is confusing. Who actually "converting" the value to the price? Why don't supply and demand straightly determines the price?

Everyone who demands it wants it at as low a price as possible.
Everyone who supplies it wants it at as high a price as possible.
The even level between demand and supply determines the value.

However if demand increases for example, the value increases, yet the price is still the same. It then takes time for the price to catch up with where the value is.
As value fluctuates price lags behind it.

They do that to a certain degree. You have to remember the opportunity costs of shopping around. It's why we settle for bad trades, no player has perfect information, some may have better information than others. Especially in the crypto world, perfect information exists in some ways but very much through the grapevine, rather than through the open channels of most economic models because otherwise you could not calculate anything near what we have come close to. Keynesian economics is a horrible system, but so far it works the best until we have another implemented, but to say that supply and demand always reign supreme is naive.

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