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Author Topic: Inflation and Deflation of Price and Money Supply  (Read 1230175 times)
sull.kureen
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February 16, 2018, 12:16:44 PM
 #981

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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February 16, 2018, 12:23:32 PM
 #982

The whole trading pictures depends from the supply and the demand. That creates the value of a given currency - such as bitcoin.
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February 18, 2018, 08:00:51 PM
 #983

While I despise them, I see the genius of the Federal Reserve system.

There's genius in stealing?  Roll Eyes
there aren't stealing...
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February 19, 2018, 01:44:23 AM
 #984

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...
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February 19, 2018, 08:41:24 AM
 #985

I think the same for each country, inflation will occur when the exchange rate of the country against another country is too large, so that the country of the currency market will be less used, and in the event of deflation, the price of the country's currency value decreases the difference, so the market will be more trust in the currency of the country.
Komorhan
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February 21, 2018, 12:28:33 PM
 #986

it has been a very nice statement, the determination of the value of the bitcoin by buyers and sellers is a good thing, but those who are in the ladder cause the prices to go down extremely excessively and the small investors are panicking and damaging. I think it would be good for everyone to have a cure for it.
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February 25, 2018, 10:23:47 AM
 #987

I'll read your post. I think is a really interesting topic. In a year or two I'll be able to reply 😊
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February 26, 2018, 12:16:04 AM
 #988

These are always confusing, I remember being really confused about the hyperdeflation of germany before WW2, the money was losing value rapidly, while nowadays when we're talking about inflation we're talking about dollars being printed and the value slowly going down every year.

I always use Bitcoin now to understand, bitcoin is deflationary, after the limit is all mined the supply will decrease because of lost coins and dying people, meanwhile it's mooning in value.
Coinonomist
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February 28, 2018, 12:49:47 AM
 #989

Just a quick note to introduce myself to the topic:

Inflation - i.e. the price of goods goes up in money terms - is perceived (in the Academy) as a good thing because it encourages spending. Keynes' "animal spirits" are a description of the expectation that times will be good in the future, so I don't need to hoard money now.

If people and businesses spend, then businesses (and people) earn money by selling.

If you believe that the $$ in your pocket today will buy you more goods than in the future (because you expect some inflation) then you have an incentive to spend now. If you expect prices to go down, then you defer your spending.

We've seen this with bitcoin over the past couple of years. When a bitcoin can increase in value from $10 to $1,000 to $10,000, then why would you spend a bitcoin on a $10 pizza (or on anything else)?

It's all great to talk about "Statists" and inflation as a tool to reduce the value of government and business debt. But a world where prices go down (think Japan in the past 30 years) is a world where people and businesses prefer saving over spending to an unhealthy degree.

Not because saving is bad, particularly when saving builds value for people, but because if everyone decides to emphasise saving at the same time, we risk ending up in another Great Depression scenario.

This is the challenge for any token/coin. How do you create value that is exciting for hodlers? But not such a steep rise in value that no-one will ever spend the token/coin for its intended purpose?
Hehe0304
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February 28, 2018, 02:23:38 PM
 #990

Money supply is inversely proportional to the value of a commodity, cryptocurrency. More the supply is, less the price. The Bitcoin is a deflationary currency.
steel3000
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March 01, 2018, 03:42:10 AM
 #991

Notes and coins are physical representations of that abstraction regardless if they are made of gold or paper. 
The only reason gold was used as the material of choice is it had the desirable properties.
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March 04, 2018, 03:17:47 PM
 #992

Definitions matter when describing the relationship between changes in the money stock, or total money supply, and inflation. For example, the first definition of inflation given by the American College Dictionary is any increase in the currency not redeemable in specie.
MadelynCohen
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March 04, 2018, 09:42:48 PM
 #993

Wow its such a good explanation about BTC in terms of inflation and deflation.
a general increase in prices and fall in the purchasing value of money is called inflation but bitcoin we use only in online system than how we know that price id less or greater .
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March 05, 2018, 08:05:58 AM
 #994

its normal if its increase or decrease value but through that kind of matter we must not let that stop our dreams just continue on what you want and it will be given to you in times.,good luck to us bitcoiners.
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March 06, 2018, 05:26:23 AM
 #995

Decreasing supply/ finite supply = usually deflationary
Increasing supply/ infinite supply = usually inflationary (all fiat currency)
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March 08, 2018, 02:14:27 AM
 #996

Thanks for creating this thread, even though its 3 years ago it still quite informative and interesting to read about the relationship between Inflation and Deflation of Price and Money Supply. Even though you have a good knowledge of bitcon in general you still need such knowledge to filled up confusion between the two.
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March 08, 2018, 04:46:05 PM
 #997

The relationship between deflation and consumer spending is relatively complex and difficult to estimate. In general, however, in the deflationary state they will initially utilize the fall in prices so that consumer spending rises sharply. After their salary is reduced or even not working again, they will reduce their spending sharply too, so that the number of consumer spending will change sharply down. It is inconceivable how long-term effects will be if deflation is not quickly overcome.
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March 10, 2018, 05:28:16 PM
 #998

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
before I am much grateful for this knowledge, this is a very useful science for me a beginner, with this post I can learn a lot and many know about bitcoin world.
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March 11, 2018, 01:58:14 AM
 #999

Inflation and Deflation of Price and Money Supply economical theory this concepts are combined each other.
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March 11, 2018, 02:06:35 AM
 #1000

Government need to control these things Inflation and Deflation of Price and Money Supply
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