Oh please, Bitcoin is NOT deflationary.

[Imahara]

Anything backed up by some limited resource is deflationary by nature. Gold backed dollar was deflationary in the late 19th and early 20th century because of huge technological advances back then and impetuous economic growth thereby...

No. If gold backed dollar turned out to be deflationary, it was because of an unforseen increase in the demand for it. Anyone who could have predicted it, would have held on to those dollars before, causing a rise in the purchasing power of the dollar immediately (deflation), and a constant price level for decades after. Prices went down over time because demand for the dollar was bigger than expected. The pain was caused by the inability to adjust to the unexpected deflation in contracts like wages.

People are saying now, that bitcoin is deflationary.. That is like saying you already know something that other market participants don't. Well, buy as much as you can and enjoy!

Again, with a fixed number of bitcoins, the production per bitcoin may go up. But what you can buy with a bitcoin will not because of that. Simply because people are free to hold on to their bitcoins to spend in the future if they though it worthwhile.

[NorbyTheGeek]

A currency is not considered inflationary or deflationary based on its exchange rate to other currencies.  You have to stop thinking about it's "price" when considering whether or not Bitcoin is deflationary.

Talk to an economist instead of spouting your misguided theories.

[Martijnvdc]

A currency is not considered inflationary or deflationary based on its exchange rate to other currencies.  You have to stop thinking about it's "price" when considering whether or not Bitcoin is deflationary.

Talk to an economist instead of spouting your misguided theories.

THIS. Bitcoin should be seen as a currency on it's own.

[deisik]

You keep talking as if in every round of production, you are forced to spend every dollar in existence. You are free to keep it in your pocket. Currency is not just for transactions now, it is also a store of value over time. That is what un-links the currency supply from the production it can buy. What currency buys is for the market to decide, and people thinking about that can take account of the increasing demand for transaction, the wear and tear of bills, etc.

Every coin you stash away diminishes the number of coins that will enter the market, thus inducing even tighter competition for coins and pressing prices down even stronger. If prices fall below some level, producers start cutting production which ultimately leads to unemployment, impoverishment and overall depression...

That's why deflation is ultimately bad for the economy!

[illpoet]

hmm its usd price has gone up from 8 usd to 1,000 usd in under a year, i don't know why everyone is saying its deflationary

[Imahara]

A currency is not considered inflationary or deflationary based on its exchange rate to other currencies.  You have to stop thinking about it's "price" when considering whether or not Bitcoin is deflationary.

Talk to an economist instead of spouting your misguided theories.

Who says I am talking in terms of an exchange rate with other currencies? I am talking in real terms; production divided by the number of coins. Back to Start.

Imagine a weekly market with a pile of clothes on one side of the square, and a pile of coins on the other. Every week the pile of clothes is a little bigger, and the number of coins stays the same. You are saying that the price of clothes next week MUST be lower because there are more clothes then. But what is going to happen now then? People will wait with their purchase to next week, not buying clothes now. So this weeks demand for clothes drops and prices will fall NOW. Hey presto, there is your increase in the purchasing power of your coin already. The price of clothes will be almost the same, this week and next week, so NO deflation, even though we know there will be more clothes next week.

Again, simply because the production per bitcoin will go up and up, that does not automatically mean the purchasing power of a bitcoin will always go up. There is no such link. Today's price already incorporates the expected rise in the demand for the coin because of increased use.

Bitcoin is NOT deflationary. There is no free lunch. And that is economics for ya.

[deisik]

Anything backed up by some limited resource is deflationary by nature. Gold backed dollar was deflationary in the late 19th and early 20th century because of huge technological advances back then and impetuous economic growth thereby...

No. If gold backed dollar turned out to be deflationary, it was because of an unforseen increase in the demand for it. Anyone who could have predicted it, would have held on to those dollars before, causing a rise in the purchasing power of the dollar immediately (deflation), and a constant price level for decades after. Prices went down over time because demand for the dollar was bigger than expected. The pain was caused by the inability to adjust to the unexpected deflation in contracts like wages.

This increase in the demand for dollars was caused by the expanding economy. In my post I gave you the reasons why this economic growth happened in the first place at all and now you're trying to challenge that on the basis that dollar turned out to be deflationary because of some unforeseen increase in the demand for it... Do you have any logic whatever?

[deisik]

hmm its usd price has gone up from 8 usd to 1,000 usd in under a year, i don't know why everyone is saying its deflationary

Because now you can buy with 1 BTC more than you could a year ago... If you denominated prices of goods in Bitcoin, you would see that within that year they would be falling as long as the BTC exchange rate was growing...

[Imahara]

hmm its usd price has gone up from 8 usd to 1,000 usd in under a year, i don't know why everyone is saying its deflationary

That is called deflation, for the past months the price level of stuff in terms of bitcoin has gone down.

But we're not talking about what has been happening now. More about what happens in the coming decades. Some people think that just because the number of bitcoins is fixed at some point, the general price level in terms of bitcoins must keep going down because production increases. They say that makes bitcoin 'deflationary' and worse, they say that is a bad thing.

They are wrong.

[deisik]

Imagine a weekly market with a pile of clothes on one side of the square, and a pile of coins on the other. Every week the pile of clothes is a little bigger, and the number of coins stays the same. You are saying that the price of clothes next week MUST be lower because there are more clothes then. But what is going to happen now then? People will wait with their purchase to next week, not buying clothes now. So this weeks demand for clothes drops and prices will fall NOW. Hey presto, there is your increase in the purchasing power of your coin already. (rise in the exchange rate clothes/coins)

This is what deflation means, i.e. increase in the purchasing power of your coin, meaning that you could buy more with less coins. But if you think this is always good then it is you who will ultimately be proved wrong...

[Luckybit]

Time and time people say bitcoin is 'deflationary'. That is wrong.

As if we already know that bitcoin's price relative to others assets will always be rising. Ridiculous. An expectation like that would cause people to buy bitcoin, cause its price to rise, right up to the point where the expectation is GONE. Period!

The misunderstanding comes from the fact that bitcoins cannot be created endlessly, unlike government issued currency. But it is the quantity that is fixed, not the price.

In an expanding economy the same amount of bitcoins would be continually distributed on an ever increasing quantity of goods, which would mean sustained deflation. It is not that difficult to understand really...

Each Bitcoin is 100 million Satoshi so you have a long way to go before we run out.

[Martijnvdc]

Wrong, wrong, wrong. You are dividing the value of the economy by the number of bitcoins. You should divide the value of the economy by the number of bitcoins TIMES their price.

Who says I am talking in terms of an exchange rate with other currencies? I am talking in real terms; production divided by the number of coins. Back to Start.

Yeah, no.

[deisik]

In an expanding economy the same amount of bitcoins would be continually distributed on an ever increasing quantity of goods, which would mean sustained deflation. It is not that difficult to understand really...

Each Bitcoin is 100 million Satoshi so you have a long way to go before we run out.

There is no problem with continual distribution of coins. Inevitable deflation which is caused by this distribution IS the problem...

[Impaler]

deisik:  I feel your pain, debating these Troglodytes.

That said I think the Quantity Theory of Money could be of assistance.  It is a simple and ancient formula that every economic school aknowleges.

The Formula is M * V = P * Q

M is Money Supply
V is Velocity, the number of times each money unit is transacted in the defined time period
P is the Price level of Goods and Services
Q is the Quantity of Goods and Services exchanged during the defined time period

Now once we have this formula we can clearly see that when any one factor is going up or down it must be balanced by a movement of one or more of the other factors (which factor tends to move more or less is a whole other area of debate).

If we assume that Q quantity is going to rise then their are 3 possible response, P decreases (deflation as prices are dropping), or an increase in V or M.  Now in BTC M is completely fixed (and in reality it will decline slowly from lost coins).  So this leaves only higher V and lower P as options.  Velocity in BTC could indeed rise a lot as most coins are hoarded but the overwhelming attitude is one of holding onto coins with a death-grip, and even if people did hoard their are probably practical limits to have high V can go.  This leaves a falling P as the only real option and hence the prediction of deflation (which has been spectacularly correct).  Really their can be no argument here both the pro and anti BTC sides of the debate expect deflation.

[jballs]

Time and time people say bitcoin is 'deflationary'. That is wrong.

So STOP saying Bitcoin is deflationary. It is not.

(Hope you don't mind I shortened your thread, I am only replying to those points and not arguing your points.)

Let's separate "academic theory" with real world economics, so you understand what I say when I say btc is deflationary.

Simple question- Have bought a pizza with bitcoin this month? Would you?

Remember the guy who bought a $39k Porsche for 300 btc in May? Huffpo mocked that deal.... the car seller.

Would you sell your btc today to buy a house or major expense?

I doubt it, I wouldn't. It's not important because the 'real' economy is not relying on it. Pizza makers and realtors and car dealers still mostly don't care what btc costs.

But check with any btc accepting retailers you know and I bet they see biz drop off a cliff.

That is the only problem with a deflating currency. It kills trade, people will wait as long as they can to buy things cheaper if they believe deflation will continue.

This WILL happen, simple game theory, academics are out.

Whether it is long term or perpetual, not my place to guess for now. But right now, in the real economic sense, it is absolutely deflationary on its face.

Proof- will you think of something you need that costs $1,200, and allow me to sell it to you today for 1 BTC?

Assess your decision making process as you answer that question. That is deflation.

Ignore economists! Bad for your psyche.


 

[deisik]

deisik:  I feel your pain, debating these Troglodytes.

That said I think the Quantity Theory of Money could be of assistance.  It is a simple and ancient formula that every economic school aknowleges.

The Formula is M * V = P * Q

M is Money Supply
V is Velocity, the number of times each money unit is transacted in the defined time period
P is the Price level of Goods and Services
Q is the Quantity of Goods and Services exchanged during the defined time period

Now once we have this formula we can clearly see that when any one factor is going up or down it must be balanced by a movement of one or more of the other factors (which factor tends to move more or less is a whole other area of debate).

If we assume that Q quantity is going to rise then their are 3 possible response, P decreases (deflation as prices are dropping), or an increase in V or M.  Now in BTC M is completely fixed (and in reality it will decline slowly from lost coins).  So this leaves only higher V and lower P as options.  Velocity in BTC could indeed rise a lot as most coins are hoarded but the overwhelming attitude is one of holding onto coins with a death-grip, and even if people did hoard their are probably practical limits to have high V can go.  This leaves a falling P as the only real option and hence the prediction of deflation (which has been spectacularly correct).  Really their can be no argument here both the pro and anti BTC sides of the debate expect deflation.

Thanks for your support, will take Irving Fisher's formula into my arsenal of weapons against these cavemen...

[MikeyVeez]

deisik:  I feel your pain, debating these Troglodytes.

That said I think the Quantity Theory of Money could be of assistance.  It is a simple and ancient formula that every economic school aknowleges.

The Formula is M * V = P * Q

M is Money Supply
V is Velocity, the number of times each money unit is transacted in the defined time period
P is the Price level of Goods and Services
Q is the Quantity of Goods and Services exchanged during the defined time period

Now once we have this formula we can clearly see that when any one factor is going up or down it must be balanced by a movement of one or more of the other factors (which factor tends to move more or less is a whole other area of debate).

If we assume that Q quantity is going to rise then their are 3 possible response, P decreases (deflation as prices are dropping), or an increase in V or M.  Now in BTC M is completely fixed (and in reality it will decline slowly from lost coins).  So this leaves only higher V and lower P as options.  Velocity in BTC could indeed rise a lot as most coins are hoarded but the overwhelming attitude is one of holding onto coins with a death-grip, and even if people did hoard their are probably practical limits to have high V can go.  This leaves a falling P as the only real option and hence the prediction of deflation (which has been spectacularly correct).  Really their can be no argument here both the pro and anti BTC sides of the debate expect deflation.

And to this OP and every other mentally incapacitated troll

/end thread

[Imahara]

deisik:  I feel your pain, debating these Troglodytes.

That said I think the Quantity Theory of Money could be of assistance.  It is a simple and ancient formula that every economic school aknowleges.

The Formula is M * V = P * Q

M is Money Supply
V is Velocity, the number of times each money unit is transacted in the defined time period
P is the Price level of Goods and Services
Q is the Quantity of Goods and Services exchanged during the defined time period

All you are showing is the limits of the Fisher equation of exchange. The equation is a tautology, causing more damage than good in understanding money.

When I am saying people will hold on to their money now and spend it later, that can be interpreted as lowering the velocity now, and increasing it later. Then you will understand that that is consistent with a stable price level and an increasing quantity of goods.

[jballs]

deisik:  I feel your pain, debating these Troglodytes.

That said I think the Quantity Theory of Money could be of assistance.  It is a simple and ancient formula that every economic school aknowleges.

The Formula is M * V = P * Q

M is Money Supply
V is Velocity, the number of times each money unit is transacted in the defined time period
P is the Price level of Goods and Services
Q is the Quantity of Goods and Services exchanged during the defined time period

All you are showing is the limits of the Fisher equation of exchange The equation is a tautology, causing more damage than good in understanding money.

When I am saying people will hold on to their money now and spend it later, that can be interpreted as lowering the velocity now, and increasing it later. Then you will understand that that is consistent with a stable price level and an increasing quantity of goods.

Are you familiar with the gold standard and the raging bimetalism debate of the late 19th century? William Jennings Bryan...Cross of Gold speech ring a bell?

When I am saying people will hold on to their money now and spend it later, that can be interpreted as lowering the velocity now, and increasing it later.

Economists say things like this as if they are real life. It's not that it isn't true, it's... "don't worry kids, we can eat next month, when people finally come back to shop for things again...maybe."

Deflation sucks... see pre-Keynesian history*

*Keynesianism sucks too.

[deisik]

When I am saying people will hold on to their money now and spend it later, that can be interpreted as lowering the velocity now, and increasing it later. Then you will understand that that is consistent with a stable price level and an increasing quantity of goods.

There can no longer be "later" you refer to... If you don't buy today, the producer just won't sell tomorrow, because he will have to cut production and fire his staff... Is it really so hard to grasp?