Inflation and Deflation of Price and Money Supply

[Erdogan]

Can anybody explain to me why, in an environment in which BTC is expected to appreciate further, anybody would use their BTC to spend?


For example, if I have 10 BTC, I can use that to buy something worth $5,000 today (just making numbers up). However, if I wait until it goes up, I can use my 10 BTC to buy something worth $10,000 a month from now.

Because I'm expecting the value of my holdings to appreciate rather rapidly, as many in the BTC community are, a rational person would hold rather than spend their BTC.

However, if everybody is under the assumption that BTC is still undervalued, everybody will hold their BTC in anticipation of further appreciation.

But because the value of a BTC depends on how many people are using BTC each day, and how large their spending is, nobody will be spending BTC. This will either cause the BTC ecosystem to collapse (if their was an economy that only used BTC), or the value of BTC to collapse.

I'm sure it has been addressed, but I skimmed through this thread and didn't see much. Thanks again for the help.

Trade is necessary for it to be money, but does not command the value. The value comes only from the willingness to hold.

[meadefreling]

Greetings everyone,

...little confession here, I think I may be a Keynesian ... but I have thick skin so you can beat me up.  While I despise them, I see the genius of the Federal Reserve system.  I also believe that the federal reserve system is like a dinosaur now as we stand on the brink of a crypto-currency era.

Every economy needs two types of money: one to store value, and the other for daily trade.  Clearly for today's world we use fiat currency for daily trade and a host of assets to store value: gold, real estate, bitcoin, etc.   

Bitcoin is designed to store value and/or appreciate value.  Some have mentioned above how the rate of manifestation of Bitcoins is growing so much slower than the adoption and demand for Bitcoin, and is the situation that is leading to Bitcoin's rapid appreciation in value.  That appreciation affects human behavior and so we hoard Bitcoin rather than trade freely with it.   This is not a weakness of Bitcoin, simply the way it is designed.  It's purpose now, whether we all like it or not, is "value storage" not "trade facilitator".

Agree or disagree, but there is a huge opportunity in the crypto-currency world right at this moment.  We need a cryto-currency that is designed for daily trade.  It can be just as fair and open and free and anonymous as Bitcoin, but it does need to incorporate some of the, I dare say, "Keynesian" design attributes of our common fiat currencies.  With crypto-currency, we have the ability to take the art out of the FED chairman's job and solve the problems of currency/price management with computer code.

We need a cryto-currency that people won't tend to hoard.  It needs to hold it's value day to day, but generally decrease in value over the long term in a similar way as fiat currency.  The job of the FED can be accomplished with an open formula for all to see so that it is fair and people know what they are getting.  Money supply can be controlled in real time in response to several factors like "money velocity", "adoption rate", and whatever other economic factors that must be accounted for to keep prices relatively stable, yet slowly inflating.

Adding to the money supply is easy, but there is a need for a mechanism to pull down the money supply when economic conditions dictate.  So, we would need a reserve bank of sorts to store a valuable asset (like Bitcoin) and then sell off that asset when needed as a means of pulling the trading crypto-currency out of circulation when needed.

Does anyone have other ideas for actively managing the money supply of our new crypto-currency world?  Could we manage money supply in a decentralized way?  Could we make every client their own little central bank?

I completely approve your suggestions i just wish the bureaucrats can get to read these.

[Onestopbrokers Directory]

Can anybody explain to me why, in an environment in which BTC is expected to appreciate further, anybody would use their BTC to spend?


For example, if I have 10 BTC, I can use that to buy something worth $5,000 today (just making numbers up). However, if I wait until it goes up, I can use my 10 BTC to buy something worth $10,000 a month from now.

Because I'm expecting the value of my holdings to appreciate rather rapidly, as many in the BTC community are, a rational person would hold rather than spend their BTC.

However, if everybody is under the assumption that BTC is still undervalued, everybody will hold their BTC in anticipation of further appreciation.

But because the value of a BTC depends on how many people are using BTC each day, and how large their spending is, nobody will be spending BTC. This will either cause the BTC ecosystem to collapse (if their was an economy that only used BTC), or the value of BTC to collapse.

I'm sure it has been addressed, but I skimmed through this thread and didn't see much. Thanks again for the help.

Trade is necessary for it to be money, but does not command the value. The value comes only from the willingness to hold.

I agree, trade is necessary for it to be money. Time is needed for people to trust it. As more and more business accepting BTC for money, the better is for the whole system.

[ZephramC]

Can anybody explain to me why, in an environment in which BTC is expected to appreciate further, anybody would use their BTC to spend?


For example, if I have 10 BTC, I can use that to buy something worth $5,000 today (just making numbers up). However, if I wait until it goes up, I can use my 10 BTC to buy something worth $10,000 a month from now.

Because I'm expecting the value of my holdings to appreciate rather rapidly, as many in the BTC community are, a rational person would hold rather than spend their BTC.

However, if everybody is under the assumption that BTC is still undervalued, everybody will hold their BTC in anticipation of further appreciation.

But because the value of a BTC depends on how many people are using BTC each day, and how large their spending is, nobody will be spending BTC. This will either cause the BTC ecosystem to collapse (if their was an economy that only used BTC), or the value of BTC to collapse.

I'm sure it has been addressed, but I skimmed through this thread and didn't see much. Thanks again for the help.

Trade is necessary for it to be money, but does not command the value. The value comes only from the willingness to hold.

I agree, trade is necessary for it to be money. Time is needed for people to trust it. As more and more business accepting BTC for money, the better is for the whole system.

People will be using money even if this money increases in value. Not everybody will hold their BTC. People will just think twice before spending or investing. Merchants will have to offer something really good and useful to outweigh decreasing prices (it works for mobile phones, computers, and will work for food and housing as well - eventually). I do not want ANOTHER inflationary currency. There is plenty of this already.

[Kayex]

So in a sense, are the deflation and inflation of BTC kind of like stocks?
Since it's effected by current events relating to BTC.
And also it's ran by supply and demand?

[boumalo]

So in a sense, are the deflation and inflation of BTC kind of like stocks?
Since it's effected by current events relating to BTC.
And also it's ran by supply and demand?

The price is linked to future price expectations and supply and demand

Bitcoin is an inflationary currency in the sense that the number of bitcoin is rising : 11m today to 21m in 2140 but the number of users and the wealth it represents is going up faster so the price should appreciate

[Kayex]

So in a sense, are the deflation and inflation of BTC kind of like stocks?
Since it's effected by current events relating to BTC.
And also it's ran by supply and demand?

The price is linked to future price expectations and supply and demand

Bitcoin is an inflationary currency in the sense that the number of bitcoin is rising : 11m today to 21m in 2140 but the number of users and the wealth it represents is going up faster so the price should appreciate

So if I was to buy btc, would now be the best time?
Since that the price is appreciating right now.

Also 2140 is going to be a really long time from now. Would this investment be worth it?

[boumalo]

So in a sense, are the deflation and inflation of BTC kind of like stocks?
Since it's effected by current events relating to BTC.
And also it's ran by supply and demand?

The price is linked to future price expectations and supply and demand

Bitcoin is an inflationary currency in the sense that the number of bitcoin is rising : 11m today to 21m in 2140 but the number of users and the wealth it represents is going up faster so the price should appreciate

So if I was to buy btc, would now be the best time?
Since that the price is appreciating right now.

Also 2140 is going to be a really long time from now. Would this investment be worth it?

Do your due diligence and invest if you understand; diversify (geographically, sectorally and by type of asset) to lower your risk

The price seems very low at the moment compared to the potential, the adoption and the superiority of the technology but it can go down more before it goes up which is not a problem if you plan on holding for a few years

[qbitbit]

it either you get rich or die trying

To have some some aim -very important

[painlord2k]

So in a sense, are the deflation and inflation of BTC kind of like stocks?
Since it's effected by current events relating to BTC.
And also it's ran by supply and demand?

The price is linked to future price expectations and supply and demand

Bitcoin is an inflationary currency in the sense that the number of bitcoin is rising : 11m today to 21m in 2140 but the number of users and the wealth it represents is going up faster so the price should appreciate

So if I was to buy btc, would now be the best time?
Since that the price is appreciating right now.

Also 2140 is going to be a really long time from now. Would this investment be worth it?

2140 is just when the last satoshi will be mined.

But, if you look at the schedule, you will see by:
2016 - 3/4 of all btcs will be mined
2020 -7/8 of all btc will be mined
2024 15/16 of all BTC will be mined

I would say inflation after 2016 become very low and after 2020 become inconsequential.
in 2016 inflation will drop to < 4.5%/year
in 2020 inflation will drop to < 2,5% year
in 2024 inflation will drop to < 1,25%/year

The games will be over well before 2140.
Already after 2020 there will be little to be decided.

[painlord2k]

For the people concerned, I was updating my charts today with the last data of the Federal Reserve and, for the first time, the differential between the past 52 weeks inflation of BTC supply and M1 supply is under 1% (0,87%).

In the next year BTC supply inflation will  be between 10% and 12.5% where the inflation of the $ M1 will be north of 12% (Money Base inflation just bounced over 20% falling from 40% of last November).

BTC will actually inflate LESS than the USD for the first time in just few weeks (maybe four, maybe eight, surely by the end o f the year this will happen).
This is when the next hyperbolic will start.

https://www.youtube.com/watch?v=4JqZgGvxjQY

[Mirdude]

Thanks for this information, I've read through it and it's very detailed and well structured.

[audereyy]

For the people concerned, I was updating my charts today with the last data of the Federal Reserve and, for the first time, the differential between the past 52 weeks inflation of BTC supply and M1 supply is under 1% (0,87%).

In the next year BTC supply inflation will  be between 10% and 12.5% where the inflation of the $ M1 will be north of 12% (Money Base inflation just bounced over 20% falling from 40% of last November).

BTC will actually inflate LESS than the USD for the first time in just few weeks (maybe four, maybe eight, surely by the end o f the year this will happen).
This is when the next hyperbolic will start.

https://www.youtube.com/watch?v=4JqZgGvxjQY

This is the very useful information, thank you very much. And a nice song btw

[yucca]

For the people concerned, I was updating my charts today with the last data of the Federal Reserve and, for the first time, the differential between the past 52 weeks inflation of BTC supply and M1 supply is under 1% (0,87%).

In the next year BTC supply inflation will  be between 10% and 12.5% where the inflation of the $ M1 will be north of 12% (Money Base inflation just bounced over 20% falling from 40% of last November).

BTC will actually inflate LESS than the USD for the first time in just few weeks (maybe four, maybe eight, surely by the end o f the year this will happen).
This is when the next hyperbolic will start.

https://www.youtube.com/watch?v=4JqZgGvxjQY

This is the very useful information, thank you very much. And a nice song btw

Indeed, thanks for the heads up on this, telling it how it is, just like Dylan and Watchmen did!

[bitinlet]

So in a sense, are the deflation and inflation of BTC kind of like stocks?
Since it's effected by current events relating to BTC.
And also it's ran by supply and demand?

The price is linked to future price expectations and supply and demand

Bitcoin is an inflationary currency in the sense that the number of bitcoin is rising : 11m today to 21m in 2140 but the number of users and the wealth it represents is going up faster so the price should appreciate

So if I was to buy btc, would now be the best time?
Since that the price is appreciating right now.

Also 2140 is going to be a really long time from now. Would this investment be worth it?

2140 is just when the last satoshi will be mined.

But, if you look at the schedule, you will see by:
2016 - 3/4 of all btcs will be mined
2020 -7/8 of all btc will be mined
2024 15/16 of all BTC will be mined

I would say inflation after 2016 become very low and after 2020 become inconsequential.
in 2016 inflation will drop to < 4.5%/year
in 2020 inflation will drop to < 2,5% year
in 2024 inflation will drop to < 1,25%/year

The games will be over well before 2140.
Already after 2020 there will be little to be decided.

Trying to pinpoint inflation amounts is impossible because right now Bitcoin's value is really determined by the bilateral currency (i.e. The $US). If QE4 or 5 were to pop up around the corner, that will increase the supply of US$ a lot, making one dolloar worth less and making any fixed supply currency more valuable.... i.e. Bitcoin. Notice how since QE is slowing, Bitcoin's value has pretty much just flattened?

Basing inflation rates on the fundamentals of Bitcoin itself (without accounting for the US$ or the formalized fiat) is insane because Bitcoin hasn't been completely adopted (and won't be) and because it's value is still a function of other currencies.

Bitcoin's price is based on supply (which is fixed), demand (which is a function of both inflation in non-digital currencies and general acceptance and adoption). That's why modeling Bitcoin's price is actually quite possible.

[07Ghost]

Confused at first, espically the definition. You guys differenciated from each other.  Finally get clearer and clearer

[CryptInvest]

Can anybody explain to me why, in an environment in which BTC is expected to appreciate further, anybody would use their BTC to spend?


For example, if I have 10 BTC, I can use that to buy something worth $5,000 today (just making numbers up). However, if I wait until it goes up, I can use my 10 BTC to buy something worth $10,000 a month from now.

Because I'm expecting the value of my holdings to appreciate rather rapidly, as many in the BTC community are, a rational person would hold rather than spend their BTC.

However, if everybody is under the assumption that BTC is still undervalued, everybody will hold their BTC in anticipation of further appreciation.

But because the value of a BTC depends on how many people are using BTC each day, and how large their spending is, nobody will be spending BTC. This will either cause the BTC ecosystem to collapse (if their was an economy that only used BTC), or the value of BTC to collapse.

I'm sure it has been addressed, but I skimmed through this thread and didn't see much. Thanks again for the help.

You can imagine how you behave in this situation about how to behave like other people say. Probably someone from the people who received early bitcoin prefer to spend it on shopping.

[painlord2k]

Can anybody explain to me why, in an environment in which BTC is expected to appreciate further, anybody would use their BTC to spend?
....

Because as a living being you CAN NOT stop consuming (and spending).
You could delay some consumption, but you can not stop from consuming goods completely.

For example:
You have only BTCs and need to buy food to eat. You could delay consumption for a day, maybe three, but then you will be hungry and the desire to eat will probably be stronger than the desire to profit from a future increase in value of your BTC. Or maybe not and you will die starving. You will probably just use the minimum quantity of BTC you could spend to buy ramen and delay buying Champagne and caviar for the future.

This is an extreme situation, but there is a large number of people with different (often very different) time preferences, so there always be at least a small flow of Bitcoin to be exchange for goods and services or fiat.
If I acquire Bitcoin just to pay for my new tablet, because I can only use Bitcoin if I'm in Ghana and want to pay a shop in the US, my time horizon is very short. If I buy Bitcoins because I want protect my savings from inflation in Argentina, my time horizon is much longer.

[melody82]

watching

[affan]

Real money? Gold and Silver , because they have an intrinsic value

us dollar have intrinsic value? no, only the value of the paper and ink it is printed on

still print more paper money?

just my opinion