Inflation and Deflation of Price and Money Supply

[toolsmans]

These are two related terms. In fact, one is the opposite of the other: inflation is the decrease in the value of a currency to the value of resources (services,goods,disponibilty of materials...). Imagine it as the ratio of the value of resources to the amount of money that exists the change in the resources value is just a question of demand and supply. Deflation is the opposite of that. Now how is Bitcoin related to this? It is simply because bitcoin gains it's value due to the increase in it's use thus the trading with other currencies so if they lose in value bitcoin does too.

Why if altkoins lose value then bitcoin too? These are completely different products that have their value in the market and fill their niche as a technology. Of course there is not a natural growth of coins, but there is also natural growth, which increases the value of each coin with the development and the population of each individual technology. There are cases when one technology loses value while the other acquires.

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[weckel]

You hit the nail on its head, great explanation!

I'm always so fustrated when someone doesn't get the MoneySupply-Inflation that still occurs in bitcoin just at an exponentially decreasing percentage. So right know for bitcoin to keep its value it has to go up by the price percentage of the increase in supply.

So currently every 10 minutes 25 bitcoin get created which means 86400 seccond/increase in supply per second (0.042)= 2057 bitcoin per day
Now we calculate the marketvalue of those 2057 btc (2057*15000= 30 855 000 USD)

Therefore the marketcap of Bitcoin has to increase by 30 855 000 USD per day to hold its value i.e. current exchange rate.

This is equal to (30 855 000/240 000 000 000) = 0.0001285 percent of the marketcap

[Divya reddy1]

Keynesian economics is a horrible system, but so far it works the best until we have another implemented

Keynesian economics is not science, it's just form of propaganda. You receive money from government to justify big government and call this economics, ecology etc.

So you mean the Keynesian economics is not exactly as what they said because they're under control of the goverment?

You hit the nail on its head, great explanation!

I'm always so fustrated when someone doesn't get the MoneySupply-Inflation that still occurs in bitcoin just at an exponentially decreasing percentage. So right know for bitcoin to keep its value it has to go up by the price percentage of the increase in supply.

So currently every 10 minutes 25 bitcoin get created which means 86400 seccond/increase in supply per second (0.042)= 2057 bitcoin per day
Now we calculate the marketvalue of those 2057 btc (2057*15000= 30 855 000 USD)

Therefore the marketcap of Bitcoin has to increase by 30 855 000 USD per day to hold its value i.e. current exchange rate.

This is equal to (30 855 000/240 000 000 000) = 0.0001285 percent of the marketcap

2. Money Supply Inflation refers to the "fall in the purchasing value of money" part of that definition

Didn't we already go over this? Money supply inflation means there is more money in the money supply than previously. Supply on its own has nothing to do with value (in a vacuum, admittedly), it is only a quantity; only when it is combined with demand can you determine a value or price.

Therefore, I can not agree that inflation "means the same thing as increase", as it conflicts with the "fall in the purchasing value of money" part of that definition.

So you are using the "keynesian" economic definition to make an argument? I thought this thread was about avoiding that. The gist of what people who dislike the contemporary meaning of inflation is that it is talking about an effect rather than a cause, something you have unfortunately not grasped in your posts, and really have fallen into the very trap for which the term is disliked.

We can get to that once your interpretation of the word inflation is understood.

I am capable and willing to use my brain to derive the meaning of the word inflation from the context. Around here, that is generally frowned upon because of something a monetarist once said that was misattributed to an austrian.

[rocketbits]

Keynesian economics is a horrible system, but so far it works the best until we have another implemented

Keynesian economics is not science, it's just form of propaganda. You receive money from government to justify big government and call this economics, ecology etc.

So you mean the Keynesian economics is not exactly as what they said because they're under control of the goverment?

Although inflation and deflation are different for different countries, yet it is now always within control of the government. Government can only plan and solve the problems for long terms. For example, inflation depends on the international rates, facts and figures.

On the other hand, supply and demand can be affected by unequal supply and demand. So, it’s generally a phase that every person has to go through.

[Nana99]

Bitcoins aren't exactly money as we know it. Supply of it is totally different thing. that might be some similarity but in long run it won't be just another currency.

[erichall]

Keynesian economics is a horrible system, but so far it works the best until we have another implemented

Keynesian economics is not science, it's just form of propaganda. You receive money from government to justify big government and call this economics, ecology etc.

And then you bail yourself out, over and over again, while the people believe you "saved" them by flexing your big muscles.

And guess who just keeps getting richer throughout this process?

[sister1001]

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!

For me the main factors to consider are the political balance among the debtors an the lenders, being the debtors the ones that want an overabundant supply of money, versus the lenders always in search of strong currencies

[sheamus10]

Please, the definition of inflation is not that controversial of a topic!

I have the feeling somebody is getting trolled here.

I think and i believe that the next coin will next to bitcoin is bitcoincash. Becuase it is have high potential to be compete with bitcoin and his starting to move and ride to rocket to the moon. So bitcoincash is the next in bitcoin. Invest in bitcoincash the you will earn more profit with that.

how about eth and bitcoin gold, I think both of these coins have a pretty good development but for now bitcoin is still very popular. so I am very interested in both these coins.

[sw777]

Please, the definition of inflation is not that controversial of a topic!

I have the feeling somebody is getting trolled here.

I think and i believe that the next coin will next to bitcoin is bitcoincash. Becuase it is have high potential to be compete with bitcoin and his starting to move and ride to rocket to the moon. So bitcoincash is the next in bitcoin. Invest in bitcoincash the you will earn more profit with that.

how about eth and bitcoin gold, I think both of these coins have a pretty good development but for now bitcoin is still very popular. so I am very interested in both these coins.

Hello everybody, new Regeneration money, Phoenix(Brth)!
https://github.com/Phoenixxx777/Phoenix

[nikola22]

Bitcoins aren't exactly money as we know it. Supply of it is totally different thing. that might be some similarity but in long run it won't be just another currency.

but in some countries bitcoin is considered as money.

[aexislord]

Bitcoins aren't exactly money as we know it. Supply of it is totally different thing. that might be some similarity but in long run it won't be just another currency.

but in some countries bitcoin is considered as money.

It's only in some countries only, the rest are put it in the prohibited section.

[LovelyFLOWER]

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!

Since the bitcoin price was undeterminable because it can also have an increasing and decreasing price.but you must know that every transaction is had an inflation and deflation most of all base on the economical states of country. Simplify that it is more  possibly that bicoin can drived up high. Assure that its price was higher that nowadays.

[xrenderman]

Keynesian economics is a horrible system, but so far it works the best until we have another implemented

Keynesian economics is not science, it's just form of propaganda. You receive money from government to justify big government and call this economics, ecology etc.

So you mean the Keynesian economics is not exactly as what they said because they're under control of the goverment?

Well if your income are 100% depended on the government you wouldn't say anything to harm it. You don't bite the hand that feeds you. And that alone is enough to really be cautious about information coming from that source.

Also the only modern active alternative school is austrian and they are proven to predict things way better and they have a radically different approach(and the one that actually makes some logical sense).

[torch2121]

Thank you very much for this information. Very much helpful for beginners like me to understand more on how to do this. Thanks for sharing.

[robustctrl]

Keynesian economics is a horrible system, but so far it works the best until we have another implemented

Keynesian economics is not science, it's just form of propaganda. You receive money from government to justify big government and call this economics, ecology etc.

So you mean the Keynesian economics is not exactly as what they said because they're under control of the goverment?

Well if your income are 100% depended on the government you wouldn't say anything to harm it. You don't bite the hand that feeds you. And that alone is enough to really be cautious about information coming from that source.

Also the only modern active alternative school is austrian and they are proven to predict things way better and they have a radically different approach(and the one that actually makes some logical sense).

These are unfair and incorrect views of the Keynesian economics.

Keynes pioneered the study of the economy as an aggregate. It also introduces the idea of disequilibrium and price stickiness, which are occurring themes if you conduct any serious macroeconomic analysis. He also introduced behavioral elements in his formal analysis e.g. money demand equation and term "Animal Spirit". He would have incorporated expectation but the mathematics at his time was not advanced enough to handle that.

The policy prescriptions from Keynes's theory are natural implications of his theory, which remains revolutionary even to this day. The great depression in the late 20s dealt a huge blow to the Austrian school as well as western capitalism in general. It beckoned a response outside the box and Keynes' demand management really was the answer until the 70s. You have to remember that even liberals in the west placed a lot of hope on Communism during the great depression, the vibe was certainly very different from now.

While it is unfortunate that Keynesian economic theories have been politicized to benefit the state power, it is also nature that for a long period of human history big states and institutions exist. The Austrian school was too ahead in its time and the technology was not there until more than a hundred years later. The free market is still an imperfect institution (as correctly realized by Keynes) that is not really free and transparent, central authority is needed to enforce property rights.

So contrary to what you have said, it is Keynesian economics that was radical to the traditional Austrian school. Hell, it is even radical in this day as the neo-liberalism (a politicized descendant of the Austrian School) took over the world from the 90s that led to the tremendous growth of wealth and income inequality.

[Florc41]

INFLATION is a continual increase in the price of goods and services while DEFLATION a decrease in the amount of available money or credit  in an economy that causes prices to go down.

Those are phrases from a dictionary.

So the difference is in inflation the INCREASE is continuous in the PRICE and SERVICES regardless of the factors while in Deflation is a decrease but not stating the frequency of the decrease and with cause and effect. The cause is decrease in the availability of money or credit and the effect is price decrease.

[santieevanz]

The original post discussed the term and the meaning of decreasing and increasing of bitcoin. Through this, it helps everyone to understand the difference between the two. On the other hand, the reason why the bitcoin is suffering from fluctuating value is also because of the demand of the bitcoin which is a big part in the economy. Through trading, mining and investing will help the economy of bitcoin healthier.

[platinumplus2007]

I know I am asking in the wrong place but figured I should at least give this a shot in hopes someone would help me out, as you can see I am newbie so how does one become a jr. member or higher? how many posts etc to reach each position. thanks again. sorry for newbie question in the non newbie section lol .

[kaliukvictoriya42]

 i think he just doesnt know what he is talking about.

[kaliukvictoriya42]

An excellent post that I'll sticky so people can learn from.