Inflation and Deflation of Price and Money Supply

[pokang13]

This naturally happens in the buainesa worl.In good times or in bad times, you need to be adaptive and flexible.You have to be ready in inflation and deflatio  of price and money supply.

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[PlayChip]

Oh, to have been involved in Bitcoin back when having 10-20 BTC didn't put you in the top 1% already!

Great explanation of inflation and deflation, shame I am five years late!

[Baokali92]

I really think at this current rate bitcoin is producing over capacity output which also makes the demand for it lower. I think the value of it will start to slowly depreciate

[cleberw3b]

Bitcoin is an asset that has limited supply, witch make it more expensive over time, meaning, over adoption. People need to remember that Bitcoin came to substitute money as we seen today. Governments and Banks have been creating money from thin air since World War One when they created fiat money, since then inflation is taken wealth from people as the value of the paper is reduced by new printed money, as colateral as that we have debt increase which take wealth from futures generations to be expended nowadays. As more fiat currencies fail around the world more people will realise what is real money and they will come for Bitcoin as store of value beacuse of it intrisic value, scarcity.

[Laily alie]

Infrastructure for bitcoin generated from mining and we need a device that is not cheap. maybe in future after bitcoin can't be mining, the miner will mining other altcoin and payout in bitcoin like a multipool.
 

[ygapophysis]

Keynesian and other non-monetarist economists reject orthodox interpretations of the quantity theory. Their definitions of inflation focus more on actual price increases, with or without money supply considerations.

[nematography]

According to Keynesian economists, inflation comes in two varieties: demand-pull and cost-push. Demand-pull inflation occurs when consumers demand goods, possibly because of a larger money supply, at a rate faster than production. Cost-push inflation occurs when the input prices for goods tend to rise, possibly because of a larger money supply, at a rate faster than consumer preferences change.

[YXIN02]

I think mining is bring down hazard than trading in light of the fact that the prizes are unsurprising. It's as yet conceivable to be dumb and accomplish something like CPU mining, which gets you basically 0 reward and costs you a considerable measure as far as power and so on. However, accepting diggers are normal and fit for assessing the cost/advantage, and expecting the ASIC merchants start thinking responsibly so free market activity for ASIC mining equipment levels out, at that point mining is bring down hazard as a result of the settled startup costs and unsurprising exponentially diminishing returns. It's conceivable to lose cash on mining, however the factors (trouble, square reward, arrange hash rate, mining pool expenses, PPS versus PPLNS versus DGM versus POT and so on.) are all in the open. The factors that influence you when you theorize on the trades are generally covered up.

The ASIC sellers right currently are making colossal repressed request which may even be driving the cost of BTC up as some kind of air pocket. Conventionally a normal performing artist would see this much request and react by capitalizing on it and offering ASICs until the point when the request drops down. Evidently, effectively delivering an ASIC is hard to the point that there's a kind of hindrance happening at the present time.

[cescudero95]

What has been said in this thread, if anything, about coins who have no fixed cap, and thus unending mining designed?

[florianuhlemann]

from all the above, I realized only one thing, that the price of bitcoin may fall not because of the presence of a huge number of sellers, but because of the lack of buyers

[cleberw3b]

from all the above, I realized only one thing, that the price of bitcoin may fall not because of the presence of a huge number of sellers, but because of the lack of buyers

That is exact.

As more fiat currencies fall inevitably more people will come to bitcoin.

[MyNameIs Trung]

How can a digital simulation of money become more illusory than it already is? Simulated money will always be an illusion, but because it is a simulation we do not have to accept the 'rules' coded into it as if they were the Ten Commandments. Instead, we can select the relevant sections of source code, hit the delete button, and start over.
 

[nischal123]

In general money supply is  undertaken by Central bank. But in the Case of Bitcoin who are responsible for increase and decrease of the supply of Bitcoin. 

[msbtrooper]

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!

The keynesian school of thought postulated that money supply has complex and great influence on inflation. Keynes himself proposed that inflation was caused in a number of different ways:

1) DEMAND OUTSTRIPPING SUPPLY: This further confirm the law of demand and supply which show an inverse relationship between price and supply and a positive relationship between demand and price.

2) INFLATION BEING BUILT IN A SYSTEM: Keynes acknowledge this because in most developing economies, this is done with the machinery of government just to make some people rich.

3) HIGHER COST PUSHING INFLATION HIGHER: Keynes also talked about higher cost incurred in production which can cause inflation to also go higher. A good example of this is multiple taxes which can jark up the price of the goods another one is high prices of raw materials.

The Keynesian school of taught identified lots of reasons which i have highlighted some of it here. The school of taught is one of those school of taught in Economics which has helped in the development of economics to this level it is today and as such you can not talk on economics without mentioning The Keynesian School.

[dharavikala]

On the off chance that quantum processing can really break the hash capacities and crypto which are right now utilized in the blockchain, bitcoin will develop just by changing to new crypto and hash works that are not broken by quantum registering.

The bitcoin convention permits the blockchain to utilize any capacity. Each exchange incorporates the directions on what calculations were utilized.

[licensedcash]

In inflationary framework like we have today it's recommended that 2% swelling is "solid" for the economy. I can't envision if expansion was at least 10%. Would someone be able to figure or clarify what % of collapse will be with Bitcoin money once it balances out? I think If it's moderately low around 2% flattening then it's reasonable and economy will have sufficient energy to flourish. In the event that flattening will be at considerably higher rate then economy will genuinely hurt in light of the fact that nobody will need purchase anything and it will be unbeneficial for organizations to deliver products on the grounds that from the minute it's created to get to racks for clients the merchandise would diminish in value dramatically. Hope somebody can disclose this to me.

[unesse]

In 2001, the output of widgets increases 20%. The Money supply increases 20%. Therefore, the average price of a widget stays at £0.50 (zero inflation) In 2002, the output of widgets increases 16.6% and money supply also increases 16.6%. Prices stay the same and the inflation rate is 0% However, in 2003, the output of widgets increases 14% but the money supply increases 42%. WIth the money supply increasing faster than output, there is a rise in nominal demand. In response to this rise in demand, firms put up prices and we get inflation.

[mmacdonell]

US Confederacy 1962-65. During the Civil war, the Confederacy of southern states found itself short of finance (it could only raise 46% of the cost of war from taxes and bonds) so it increased the printing of money to pay for materials and soldiers. However, with economic output falling, this caused inflation of 700% in the first two years of war and reaching a peak of over 5000% by the end.

[manishsqrt]

I think bitcoin is currency, by currency i mean its like value, not like cash. It is a commodity. When you exchange some commodity worth x dollar with a bank note of x dollar then you are actually exchanging the commodity's worth. Inflation deflation is still maintained by amount of cash flow by government. Fiat money applies in term of cash and not for coins. Because metal is limited. You cannot make as much coins as you want. Bitcoin is also a value it cannot control inflation or deflation. Whatever inflation deflation we will observe will depend on its demand.

[vasilev456]

In general, if you think that the price of bitcoin should constantly increase, that bitcoin is limited, but what we see on the market seems to me to be connected with the fact that people who are engaged in mining just sell their coins, so the price of bitcoin does not grow!