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Author Topic: Bitcoin's first major deflation event, and its consequences  (Read 13884 times)
asdf
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February 10, 2013, 09:16:02 PM
 #21

"the economy will crash because it's growing too much!"

Price of bitcoin goes up because of real economic growth -> no one spends bitcoins because they'll be worth more. -> economy contracts because there is no commerce so price goes down. -> people spend their bitcoins because they'll be worth less -> [back to start]

This illustrates a control system with a negative feedback loop. This is inherently stable (control systems theory).

Deflationary spiral argument is complete bullshit invented to justify printing money to serve political ends. Deal with it.
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February 10, 2013, 09:21:23 PM
 #22

"the economy will crash because it's growing too much!"

Price of bitcoin goes up because of real economic growth -> no one spends bitcoins because they'll be worth more. -> economy contracts because there is no commerce so price goes down. -> people spend their bitcoins because they'll be worth less -> [back to start]

This illustrates a control system with a negative feedback loop. This is inherently stable (control systems theory).

Deflationary spiral argument is complete bullshit invented to justify printing money to serve political ends. Deal with it.

I couldn't have said it better myself.

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February 11, 2013, 12:49:11 AM
 #23

There are many currencies, even BTC is deflative by nature, some other inflative currency will work the opposite way, and act as a reference

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February 11, 2013, 01:49:33 AM
 #24

Not this again....

+1 btw people need to eat

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February 11, 2013, 01:57:22 AM
 #25

Quote from: basically everyone in this thread
no one will hoard forever; that makes zero sense

in the OP i talk about the effects of hoarding on the price right now, and how it may incentivize people with large holdings to trade bitcoins back for fiat in a realllly long game of hot potato instead of using them to purchase goods. this, again, is not the standard BITCOINZ GUNNA DIE CUZ DEFLATION. i talk about the bloating of the financial sector as opposed to growth in commerce, and how the bloating of the financial sector might hamper growth in commerce. if you're going to say the quoted above, post it in the other million threads debunking the hoarding forever myth.

What is this first major deflationary event in the bitcoin economy that you're watching?
What kind of price behaviour is it, that will or will not change the perception of bitcoin either way regarding the currency vs. store-of-value dichotomy?

I really don't get it, I don't see any unusual price behaviour, nor deflationary event.

skyrocketing demand + limited supply = deflation. this is a textbook definition. this deflation is recognizable as a rate of change of price similar to price bubbles in the past, but fundamentally different (selloffs don't cause panics and are almost immediately absorbed by buying pressure, for one).

if you're trying to make a snide point about how you don't believe the present price action is due to deflation at all, then i'd appreciate that more open discussion. i think you know what i mean by price behavior: $5 -- > $25 in about 10 months.

Quote
And for most of the coins not being moved, why would I care? All I care about is that it's possible for me to move them around, superfast, supereasy, supercheap.
I just don't care about what other people do with their coins, hoarding, spending, burning, it's their choice, not mine.

if you didn't care at all about what other bitcoin users are doing you wouldn't be on bitcointalk discussing the economics of the system. i realize i hit a nerve when i mentioned deflationary spiral, but i'm seriously just trying to engage you guys in discussion here...

----------
realizing there are wayyy too many responses id like to make to quote everyone... i hope this is followable.
----------

gmg -- that actually does make sense because currency refers to money velocity. it is a vacuous truth, in a way.

solex -- stores of value and units of account can be conflated but are also very different concepts.

nagato -- gold doesn't have much of a support economy. it's difficult to purchase goods for gold. this is exactly the point, and why it is a good example of a medium that has shifted more towards store-of-value and less towards currency. do we want our bitcoins in vaults or do we want our bitcoins in a marketplace? also, if a single wall street banker is behind this (which unless he has a google search bot he most certainly isn't) then we are in sorry shape indeed. exploding demand + limited supply = significant deflation.

phatsphere -- there is at least one pure strategy nash, that is hoard. there are also many mixed strategies. this is true of many games but that is beyond the scope of this discussion.

lethn -- this is neither faulty mathematics nor economics. you're simplifying my argument to "EVRYONE HOARDZ FOREVER LAWLZ" but massive deflation even in the short term could set us up for a massive 'long squeeze'.

hazek -- this is not sophistry and please discuss this with me in a non-condescending way. the key here is that spending coins and selling them back for fiat produce two very different effects on the market.

asdf -- no systemic catastrophic failure, just perhaps a bunch of long squeezes. but your systems analysis is almost besides the point. how functional will bitcoin be as a currency if its growth is marked with such volatility so long after its widespread adoption? your step in the chain "economy contracts because there is no commerce so price goes down" reads a lot more tame than it would be -- not a gradual contraction but rather an extreme price correction. edited multiple times

---

TL;DR

i'm sorry the words deflationary spiral left a bad taste in your collective mouth. i actually come from an economically and mathematically informed background and would like to continue to hear your thoughts. if you guys don't think that the price behavior in the last 10 months is any cause for alarm, may i ask you why?

if you are holding significant amounts of bitcoins, please keep in mind that the market tends to minimize profits. the mechanism i'm presenting here is an eventual long squeeze.

if you don't care about what others do with their bitcoins, that is okay. but what others do with their bitcoins affects the value of your own and it might be wise to keep that in mind.

if you think that keynesian economics is merely an excuse for the powers that be to abuse the money supply, i am in full agreeance. but that belief in itself shouldn't be an excuse to develop an allergy to critiques of the Austrian school of economics.

this sentence has fifteen words, seventy-four letters, four commas, one hyphen, and a period.
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February 11, 2013, 02:02:34 AM
 #26

I'm sorry this deflationary spiral issue left a "scar" on your mathematical brain but you're completely wrong on your assumptions. Free market will prove you that with enough time.

</thread>

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arepo
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February 11, 2013, 02:08:54 AM
 #27

I'm sorry this deflationary spiral issue left a "scar" on your mathematical brain but you're completely wrong on your assumptions. Free market will prove you that with enough time.

you're stating things with certainty that you really don't have certain knowledge of. at least i'm stating my assumptions. may we discuss?

do you believe that:

a) the current rally is not a deflation event
b) these kinds of five-fold price increases will be commonplace and you'll be VERY VERY rich
or
c) you stopped reading my post three sentences in because it's obviously misguided fud and definitely not worth your time to deconstruct my argument.

if a) i beg to differ
if b) your assumptions are wrong as markets minimize such profits
and if c) why even come here at all? go throw your bits in the air around you and act smug elsewhere.

<thread>

this sentence has fifteen words, seventy-four letters, four commas, one hyphen, and a period.
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February 11, 2013, 02:24:30 AM
 #28

I'm sorry this deflationary spiral issue left a "scar" on your mathematical brain but you're completely wrong on your assumptions. Free market will prove you that with enough time.

you're stating things with certainty that you really don't have certain knowledge of. at least i'm stating my assumptions. may we discuss?

do you believe that:

a) the current rally is not a deflation event
b) these kinds of five-fold price increases will be commonplace and you'll be VERY VERY rich
or
c) you stopped reading my post three sentences in because it's obviously misguided fud and definitely not worth your time to deconstruct my argument.

if a) i beg to differ
if b) your assumptions are wrong as markets minimize such profits
and if c) why even come here at all? go throw your bits in the air around you and act smug elsewhere.

<thread>

What is your problem? You came on this board to raise an issue that doesn't exist, and which has been talked to death already. Saving (hoarding) is a natural market action when there is a certain confidence the price level will maintain. Given the built-in scarcity and the fact more people are willing to put their time and effort (money) into it then you have a steady price increase.

I'm not trying to be rude at all, only save you time, money and reputation. I don't think you go onto gold bulletin boards and tell people to stop stashing gold because they will experience some deflationary spirals. Get on with your life and start learning how markets really work.

http://www.goodreads.com/quotes/tag/free-market

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February 11, 2013, 02:26:37 AM
 #29

Wow, they are very similar posts. But you went in to much greater detail than I did. I learned Silk Road and Gambling are the two major forms of BTC commerce though:)
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February 11, 2013, 02:42:16 PM
 #30

Im still having trouble seeing the problem, maybe you can elaborate.

-Why cant Bitcoin be both a store of value and a currency?

-What is wrong with deflation?
Again your definition of deflation is referring to the Keynesian definition where prices are falling.
As far as im concerned, Bitcoin is still inflating and will then be stable in terms of money supply.
Deflation was never part of the design, save for people losing coins which should be minimal/0 by the time rewards reach 0.

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February 11, 2013, 10:59:47 PM
 #31

What is your problem? You came on this board to raise an issue that doesn't exist, and which has been talked to death already. Saving (hoarding) is a natural market action when there is a certain confidence the price level will maintain. Given the built-in scarcity and the fact more people are willing to put their time and effort (money) into it then you have a steady price increase.

I'm not trying to be rude at all, only save you time, money and reputation. I don't think you go onto gold bulletin boards and tell people to stop stashing gold because they will experience some deflationary spirals. Get on with your life and start learning how markets really work.

http://www.goodreads.com/quotes/tag/free-market

i'm glad you think this issue doesn't exist so we can discuss our differing opinions. my problem is exactly your tone in this post. you don't mean to be rude but because you are so sure that you are correct you're hampering actual discussion by being dismissive (with comments like </thread>). one gets the same reaction going to a creationist forum and arguing for evolution. i'm trying desperately to explain that i'm not beating the deflationary spiral IN THE GENERAL dead horse, but rather reopening the discussion in light of the present price increase, which seems to me to be a deflation event. i'm not arguing against fundamentals of the free market, i'm not a keynesian, and i'm not stupid. please stop treating me as the above criteria. i mostly spend time in the speculation forum, and as such, the recent price behavior has brought some questions to my mind as it seems fundamentally different than any movement in the past two years. if you think otherwise, please elaborate.

tl;dr

the price increase looks like a deflation event, not a rally or a bubble. if you disagree with me here, please explicate.

how do you think users and markets are going to react to the 5x price increase? we haven't seen such a movement in such a short time frame in quite awhile.

this sentence has fifteen words, seventy-four letters, four commas, one hyphen, and a period.
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February 11, 2013, 11:03:55 PM
 #32

-Why cant Bitcoin be both a store of value and a currency?

-What is wrong with deflation?
Again your definition of deflation is referring to the Keynesian definition where prices are falling.
As far as im concerned, Bitcoin is still inflating and will then be stable in terms of money supply.
Deflation was never part of the design, save for people losing coins which should be minimal/0 by the time rewards reach 0.

thanks for taking me seriously.

bitcoin can, and has, for the majority of its lifetime, been both a store of value and a currency. the recent shift towards the former that i have perceived can be described as follows:

say you wanted to invest in shares of satoshidice. say your expected ROI is something like 50% yearly. if your expected ROI of simply holding bitcoins is 500% yearly, then it would not make economic sense to use bitcoins to purchase shares. it would make a lot more sense to use a currency that is not expected to appreciate in value more than 50%. however, even if bitcoin is expected to appreciate in value by only 45% yearly, it would still make more sense to purchase the shares with another currency, so you can get 50% returns on the shares in addition to the 45% returns on the value you have stored in bitcoins, instead of just the marginal increase of 5% yearly that you'd get from purchasing the shares with bitcoin.

example: (using imaginary currency whose value fluctuates negligibly 'stablecoin' or STC)

100 shares of satoshidice available for sale for 10 stablecoins.
at t=0, 1 stablecoin = 1 btc
satoshidice shares yield 20% ROI yearly
bitcoins appreciate 10% yearly

scenario 1:
seeing the good investment opportunity, you purchase 100 shares for 10 BTC at t=0 (remember that the BTCSTC rate is 1 at t=0)
at t=1 yr, you sell those shares for a net profit of equivalent value to 2 stablecoins (20% of 10 btc at t=0).

however, in scenario 2:
instead of purchasing shares with BTC, you purchase them with STC and keep your 10 BTC.
at t=1 yr, you sell the shares, and you also sell the BTC for a net profit of:
2 stablecoins (from above) + (1 [btc at t=0] = 1 STC) = the equivalent value of 3 STC

in other words, you lose out when you purchase shares with bitcoin because you are no longer holding the bitcoins, but only the shares. whereas in the second scenario you are holding both BTC and shares. and this is for an ROI for btc that's LOWER than that of the shares. the very fact that BTC has a non-negligible ROI creates the better economic strategy of using an alternate currency for investments, limiting its use in this respect.

---

for your other points, there isn't anything 'wrong' with deflation. that statement is rather malformed. further, it is true that there is a small inflation rate associated with btc right now. however, that is dwarfed by the large increase in demand. as the BTCUSD rate rises, the purchasing power of a btc increases compared to the proverbial basket of goods. this is the definition of deflation. there are two halves: supply and demand. the supply is inflated, and will eventually be stable, but the demand will increase until the price discovery phase is over. once this happens, deflation will stop.

in other words, the deflationary spiral i am describing is not a never-ending process that will end in the death of bitcoin, but rather a long phase of its growth that may exhibit a dangerous positive-feedback behavior that will have negative effects on the makeup of the bitcoin economy and commerce and its adoption as a currency.



this sentence has fifteen words, seventy-four letters, four commas, one hyphen, and a period.
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February 11, 2013, 11:04:55 PM
 #33

is this a good direction for bitcoin?


Boy am I glad that nothing can be done even if it were.  Cheesy


As for your sophistry.. I just love Bitcoin and I also love my bitcoins, but unfortunately I can't eat them, I can't wear them and I can use them as clothes so eventually I will be forced to spend, no matter what game theory says is the smart move, I can survive holding bitcoins and so I will have to spend them. And that right there completely obliterates your delusional theory.


Btw I'd also challenge your assertions that we haven't had any good news.. We had plenty of good news: from wordpress announcement, to bitpay VC announcement, to their customer adoption announcement, to bitcoin-central announcement, to coinbase announcement, to satoshidice announcement, ect ect ect

We had immense progress and a huge amount of good news lately and you better believe we also had a huge increase in user base as evidenced by the volume coinbase is now reaching monthly or the records blockchain.info/mywallet is breaking..

Theres not many places outside the US where you can buy products for BTC. Exchanging coins for fiat and then buying things doesn't count.

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February 11, 2013, 11:08:45 PM
 #34

-Why cant Bitcoin be both a store of value and a currency?

-What is wrong with deflation?
Again your definition of deflation is referring to the Keynesian definition where prices are falling.
As far as im concerned, Bitcoin is still inflating and will then be stable in terms of money supply.
Deflation was never part of the design, save for people losing coins which should be minimal/0 by the time rewards reach 0.

thanks for taking me seriously.

bitcoin can, and has, for the majority of its lifetime, been both a store of value and a currency. the recent shift towards the former that i have perceived can be described as follows:

say you wanted to invest in shares of satoshidice. say your expected ROI is something like 50% yearly. if your expected ROI of simply holding bitcoins is 500% yearly, then it would not make economic sense to use bitcoins to purchase shares. it would make a lot more sense to use a currency that is not expected to appreciate in value more than 50%. however, even if bitcoin is expected to appreciate in value by only 45% yearly, it would still make more sense to purchase the shares with another currency, so you can get 50% returns on the shares in addition to the 45% returns on the value you have stored in bitcoins, instead of just the marginal increase of 5% yearly that you'd get from purchasing the shares with bitcoin.

example: (using imaginary currency whose value fluctuates negligibly 'stablecoin' or STC)

100 shares of satoshidice available for sale for 10 stablecoins.
at t=0, 1 stablecoin = 1 btc
satoshidice shares yield 20% ROI yearly
bitcoins appreciate 10% yearly

scenario 1:
seeing the good investment opportunity, you purchase 100 shares for 10 BTC at t=0 (remember that the BTCSTC rate is 1 at t=0)
at t=1 yr, you sell those shares for a net profit of equivalent value to 2 stablecoins (20% of 10 btc at t=0).

however, in scenario 2:
instead of purchasing shares with BTC, you purchase them with STC and keep your 10 BTC.
at t=1 yr, you sell the shares, and you also sell the BTC for a net profit of:
2 stablecoins (from above) + (1 [btc at t=0] = 1 STC) = the equivalent value of 3 STC

in other words, you lose out when you purchase shares with bitcoin because you are no longer holding the bitcoins, but only the shares. whereas in the second scenario you are holding both BTC and shares. and this is for an ROI for btc that's LOWER than that of the shares. the very fact that BTC has a non-negligible ROI creates the better economic strategy of using an alternate currency for investments, limiting its use in this respect.

---

for your other points, there isn't anything 'wrong' with deflation. that statement is rather malformed. further, it is true that there is a small inflation rate associated with btc right now. however, that is dwarfed by the large increase in demand. as the BTCUSD rate rises, the purchasing power of a btc increases compared to the proverbial basket of goods. this is the definition of deflation. there are two halves: supply and demand. the supply is inflated, and will eventually be stable, but the demand will increase until the price discovery phase is over. once this happens, deflation will stop.

in other words, the deflationary spiral i am describing is not a never-ending process that will end in the death of bitcoin, but rather a long phase of its growth that may exhibit a dangerous positive-feedback behavior that will have negative effects on the makeup of the bitcoin economy and commerce and its adoption as a currency.





If we return to a gold/bitcoin economy it will virtually kill off business growth and lead to massive unemployment etc. Mainly because companies will be unable to get financing.

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February 11, 2013, 11:47:02 PM
 #35

If we return to a gold/bitcoin economy it will virtually kill off business growth and lead to massive unemployment etc. Mainly because companies will be unable to get financing.

You mean economy has never growed under gold standard?

Massive unemployment is caused by concentration of production into a few multinational corporations with the aid of technology advance, it is another topic. Apple do not need to finance, they hold tons of cash, while other similar companies still can not get financing since their market share is eaten by Apple

Anyway, FED will take care about that, none of BTC's business Wink







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February 12, 2013, 01:18:38 AM
 #36

say you wanted to invest in shares of satoshidice. say your expected ROI is something like 50% yearly. if your expected ROI of simply holding bitcoins is 500% yearly, then it would not make economic sense to use bitcoins to purchase shares. it would make a lot more sense to use a currency that is not expected to appreciate in value more than 50%. however, even if bitcoin is expected to appreciate in value by only 45% yearly, it would still make more sense to purchase the shares with another currency, so you can get 50% returns on the shares in addition to the 45% returns on the value you have stored in bitcoins, instead of just the marginal increase of 5% yearly that you'd get from purchasing the shares with bitcoin.
...

in other words, you lose out when you purchase shares with bitcoin because you are no longer holding the bitcoins, but only the shares. whereas in the second scenario you are holding both BTC and shares. and this is for an ROI for btc that's LOWER than that of the shares. the very fact that BTC has a non-negligible ROI creates the better economic strategy of using an alternate currency for investments, limiting its use in this respect.

Sure, you are right that it does not make economic sense to invest in Bitcoin companies(using BTC) if you think that the currency will appreciate faster than the company. But people still invest in these companies, could they be out of their minds or just bad investors?
Its easy to forget that not everyone thinks alike. Some possible reasons why people are investing in Bitcoin Companies

1) They invested with the fiat they have (just buy btc for this purpose without touching your existing btc)
2) People don't believe BTC will appreciate faster than Satoshidice or that Satoshidice's growth will match and be parallel to the Bitcoin's adoption growth.
3) People are not sure if BTC will survive a superior crypto-currency or outlawing of the currency by nations. Yet Satoshidice offers dividends, something BTC does not, you could "cash out" every dividend if you were unsure of BTC's future. The truth is that we do not know what will happen 5 years down the road. Its easy to get carried away on the optimism on these forums that Bitcoin $100k is a sure thing that we do not see or refuse to acknowledge possible downside risks.

I have many friends in the IT sector whom ive asked whether they have heard of Bitcoin, i was surprised that most who had heard of it did not think much of it or associated it with virtual play money and brushed it off. I have a friend with very high IQ who thinks Keynesian economics is valid and that inflation induces growth by forcing people to invest instead of hoarding cash. Then again so do Economic Nobel Prize winners. I came to the conclusion that as smart as they are, they lack critical thought to question mainstream thought. They can absorb and understand all the intricacies and theories of Keynes but they lack the conviction to question if it makes sense.

Here in Singapore, ive observed that many of our top students and scholars are what i call Textbook smart. They can absorb anything you throw at them, but they can never think critically or be skeptical of the theories thrown their way because you don't score in exams by arguing with the textbook.

The point im trying to make is that as much the small group of existing Bitcoiner's see the benefits of Bitcoin, there is a very high chance that the rest of the world is not capable of doing so, thus making the $100k Bitcoin a pipe dream. After all these are the same people who voted in the very politicians who brought them their current plight.

Quote
in other words, the deflationary spiral i am describing is not a never-ending process that will end in the death of bitcoin, but rather a long phase of its growth that may exhibit a dangerous positive-feedback behavior that will have negative effects on the makeup of the bitcoin economy and commerce and its adoption as a currency.

Again you do not state how it is dangerous/negative.
Back before i heard of Bitcoin, i was less motivated to think of starting a business.
Id have to slog and take risks to earn ever depreciating currency, maybe ill just stick with my day job.
On the contrary(personally), the "deflationary" expectation for Bitcoin motivated me to think of ways to earn Bitcoin which led me to start my exchange. If i think that Bitcoin is going to the moon, would it not make sense for me to accquire/earn as many Bitcoins now? To earn, you have to serve/produce(ie start a business). The motivation to start a bitcoin business is very high for me if i know that any profits are going to grow in value.


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February 12, 2013, 01:33:04 AM
 #37



I came to the conclusion that as smart as they are, they lack critical thought to question mainstream thought. They can absorb and understand all the intricacies and theories of Keynes but they lack the conviction to question if it makes sense.



Well said.
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February 12, 2013, 02:08:06 AM
 #38

-Why cant Bitcoin be both a store of value and a currency?

-What is wrong with deflation?
Again your definition of deflation is referring to the Keynesian definition where prices are falling.
As far as im concerned, Bitcoin is still inflating and will then be stable in terms of money supply.
Deflation was never part of the design, save for people losing coins which should be minimal/0 by the time rewards reach 0.

thanks for taking me seriously.

bitcoin can, and has, for the majority of its lifetime, been both a store of value and a currency. the recent shift towards the former that i have perceived can be described as follows:

say you wanted to invest in shares of satoshidice. say your expected ROI is something like 50% yearly. if your expected ROI of simply holding bitcoins is 500% yearly, then it would not make economic sense to use bitcoins to purchase shares. it would make a lot more sense to use a currency that is not expected to appreciate in value more than 50%. however, even if bitcoin is expected to appreciate in value by only 45% yearly, it would still make more sense to purchase the shares with another currency, so you can get 50% returns on the shares in addition to the 45% returns on the value you have stored in bitcoins, instead of just the marginal increase of 5% yearly that you'd get from purchasing the shares with bitcoin.

example: (using imaginary currency whose value fluctuates negligibly 'stablecoin' or STC)

100 shares of satoshidice available for sale for 10 stablecoins.
at t=0, 1 stablecoin = 1 btc
satoshidice shares yield 20% ROI yearly
bitcoins appreciate 10% yearly

scenario 1:
seeing the good investment opportunity, you purchase 100 shares for 10 BTC at t=0 (remember that the BTCSTC rate is 1 at t=0)
at t=1 yr, you sell those shares for a net profit of equivalent value to 2 stablecoins (20% of 10 btc at t=0).

however, in scenario 2:
instead of purchasing shares with BTC, you purchase them with STC and keep your 10 BTC.
at t=1 yr, you sell the shares, and you also sell the BTC for a net profit of:
2 stablecoins (from above) + (1 [btc at t=0] = 1 STC) = the equivalent value of 3 STC

in other words, you lose out when you purchase shares with bitcoin because you are no longer holding the bitcoins, but only the shares. whereas in the second scenario you are holding both BTC and shares. and this is for an ROI for btc that's LOWER than that of the shares. the very fact that BTC has a non-negligible ROI creates the better economic strategy of using an alternate currency for investments, limiting its use in this respect.

---

for your other points, there isn't anything 'wrong' with deflation. that statement is rather malformed. further, it is true that there is a small inflation rate associated with btc right now. however, that is dwarfed by the large increase in demand. as the BTCUSD rate rises, the purchasing power of a btc increases compared to the proverbial basket of goods. this is the definition of deflation. there are two halves: supply and demand. the supply is inflated, and will eventually be stable, but the demand will increase until the price discovery phase is over. once this happens, deflation will stop.

in other words, the deflationary spiral i am describing is not a never-ending process that will end in the death of bitcoin, but rather a long phase of its growth that may exhibit a dangerous positive-feedback behavior that will have negative effects on the makeup of the bitcoin economy and commerce and its adoption as a currency.


arepo, you are still pricing in dollars/some fiat, if you price in bitcoin, the equation may shift For example, ROI  of satoshidice should be in bitcoin terms, then no matter how much bitcoin deflate/inflate, your decsion will be investing if ROI is possitive. And Isn't stoshidice is bitcoin business that all income are denomiated in bitcoins. If satoshishare couldn't earn bitcoin in bitcoin terms, then it is not a bitcoin business model.
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February 12, 2013, 02:59:01 AM
 #39

example: (using imaginary currency whose value fluctuates negligibly 'stablecoin' or STC)

100 shares of satoshidice available for sale for 10 stablecoins.
at t=0, 1 stablecoin = 1 btc
satoshidice shares yield 20% ROI yearly
bitcoins appreciate 10% yearly

scenario 1:
seeing the good investment opportunity, you purchase 100 shares for 10 BTC at t=0 (remember that the BTCSTC rate is 1 at t=0)
at t=1 yr, you sell those shares for a net profit of equivalent value to 2 stablecoins (20% of 10 btc at t=0).

Assuming you only had 10 coins and you stayed with BTC for investing at the beginning of the year:
Net profit at 1 year is actually 3.2 stablecoins when you consider the BTC apprecation of 10% at the end of the year.

however, in scenario 2:
instead of purchasing shares with BTC, you purchase them with STC and keep your 10 BTC.
at t=1 yr, you sell the shares, and you also sell the BTC for a net profit of:
2 stablecoins (from above) + (1 [btc at t=0] = 1 STC) = the equivalent value of 3 STC

Assuming you only had 10 coins and you converted to STC for investing at the beginning of the year:
Your STC have been invested wisely at 20% ROI yielding you 2 extra STC in 1 yr, they would not have had the luxury of Bitcoin appreciation though...

The difference ends up being 2 STC when not investing in BTC, and 3.2 STC when investing in the BTC denominated stock.

So if you're going to buy stock, buy stock listed in BTC, not STC.

If you can't, but you know exactly what your ROI is going to be, like in this scenario, go ahead and convert because 20% is better than 10%

Regardless, your best gains are going to be from buying stock denominated in BTC...

So I suppose you could say hoarding BTC can be useless if you have something worthwhile to invest in...

Maybe that's what all these hoarders are waiting for?

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February 12, 2013, 07:49:21 AM
 #40

twolifeinexile and thefiniteidea : I think you are missing his point. If Bitcoin's purchasing power goes up, you should expect to see a drop in the share price of Satoshi dice coupled with a drop in revenues in BTC. It is possible that you would suffer a loss on your investment in BTC terms. This should be further amplified as more competitors to SD come on board, whereas there does not yet appear to be any worthy competitor to BTC mainly because there isn't any real flaw in it and anything lacking can be built atop of Bitcoin as services(eg Facebook/email integration/etc..) and thus furthering the gap between BTC and any newcomer.

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