Oh please, Bitcoin is NOT deflationary.

[Imahara]

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?

Just because there is a fixed supply of bitcoin, that does not mean prices will have to keep going down.

No price can consistently and predictably move more than 'the' risk free rate of return, simply because that would provide a risk free profit that the market would adjust for. Bitcoin worth more in the future? I buy now and keep buying until the expectation of a further price rise is gone. Lowering today's prices of goods in terms of bitcoin and raising future ones in the process. The coins I bought I will spend tomorrow.

The Fisher equation isn't so bad after all in showing what is happening. MV=PQ, the supply of Money times its Velocity equals the Price times the Quantity of goods. We know M is fixed and Q is growing constantly. When we wrongly assume V to be a constant (as is often instructed) then the Price level would have to accommodate for the increase in quantity Q by going down. Deflation as some say.

But as I have shown, P can't move predictably without affecting people's decisions on postponing to spend. A predictable price drop tomorrow will cause less coins chasing after goods today (we are hoarding) and more coins thrown around tomorrow (we will spend). What happens is that today's Price level will lower and tomorrows Price level will go up, equalizing the price difference to within limits of the risk free rate where it can persist.

This effect of hoarding is exactly what Velocity of money means to say. Because of the fixed supply of coins and the growing economy, we can expect Bitcoins to be hoarded. The velocity of bitcoin is lower now than it will be tomorrow. The price level on the other hand will be stable within bounds. (Not keeping into account other demand fluctuations)

The problem I have with the Fisher equation is that it seems to describe money using independent variables. As you can see P and V are linked, so you cannot determine the change in a one of these two variables when you know the change in the other. There will be second order effects. In this case, a change in P will lead to a change in V now, which in return will reduce the change in P...

Economics, not an art...

[deisik]

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?

Just because there is a fixed supply of bitcoin, that does not mean prices will have to keep going down.

If the economy is expanding, then yes, it does mean just that. The economy will be expanding with prices going down as long as the negative effects of deflation are being offset by, say, technological innovations (as it was throughout the 19th century), credit and tax policies, etc. In short, as long as producers profits aren't diminishing...

[StarenseN]

You should divide the value of the economy by the number of bitcoins TIMES their price.

What if I told you: 1 bitcoin is worth 1 bitcoin :neo:

[Wardan_reloadeD]

We do not know if bitcoin is deflationary or inflationary, it all depends on if they are destroyed (password lost, hardware fail...) more than the amount bitcoins generated.

Bitcoin may now be inflationary but eventually it may become otherwise.

[deisik]

We do not know if bitcoin is deflationary or inflationary, it all depends on if they are destroyed (password lost, hardware fail...) more than the amount bitcoins generated.

Bitcoin may now be inflationary but eventually it may become otherwise.

Sorry to argue back on your so insistent an objection, but actually everything doesn't depend on bitcoin destruction through lost passwords or hardware failures... It doesn't even depend more on this than on the amount of bitcoins presently generated. And as it is already happening, in the end it will all depend on economic issues...

And no, Bitcoin is heavily deflationary right now

[jballs]

We do not know if bitcoin is deflationary or inflationary, it all depends on if they are destroyed (password lost, hardware fail...) more than the amount bitcoins generated.

Bitcoin may now be inflationary but eventually it may become otherwise.

Sorry to argue back on your so insistent an objection, but actually everything doesn't depend on bitcoin destruction through lost passwords or hardware failures... It doesn't even depend more on this than on the amount of bitcoins presently generated. As it is already happening, finally it will all depend on economic issues...

And no, Bitcoin is heavily deflationary right now

Hey I lost track of most of our running arguments, blame it on the ADD. I'll just concede my points for now as I'm sure they'll come back around if they were important. Am I oversimplifying by observing that if one bitcoin survived, that is all that would be needed? Because .0000000001.... etc? 1, or 1 million, or 21 million is more symbolic than anything in a digital world?

[deisik]

Hey I lost track of most of our running arguments, blame it on the ADD. I'll just concede my points for now as I'm sure they'll come back around if they were important. Am I oversimplifying by observing that if one bitcoin survived, that is all that would be needed? Because .0000000001.... etc? 1, or 1 million, or 21 million is more symbolic than anything in a digital world?

Yeah, it's ironic to see how one argument given earlier ("each Bitcoin is 100 million Satoshi so you have a long way to go before we run out") and intended to prove you're wrong works against another ("it all depends on if they are destroyed") which is aimed at the same...

[jjtech]

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?

Just because there is a fixed supply of bitcoin, that does not mean prices will have to keep going down.

If the economy is expanding, then yes, it does mean just that. The economy will be expanding with prices going down as long as the negative effects of deflation are being offset by, say, technological innovations (as it was throughout the 19th century), credit and tax policies, etc. In short, as long as producers profits aren't diminishing...

Isn't one of the problems with deflation fact that real value debt will increase?

[deisik]

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?

Just because there is a fixed supply of bitcoin, that does not mean prices will have to keep going down.

If the economy is expanding, then yes, it does mean just that. The economy will be expanding with prices going down as long as the negative effects of deflation are being offset by, say, technological innovations (as it was throughout the 19th century), credit and tax policies, etc. In short, as long as producers profits aren't diminishing...

Isn't one of the problems with deflation fact that real value debt will increase?

Yes, among many others. Even pro-Austrians admit it (though they doubt some other negative effects of deflation). But, in the first place, debts aren't necessary (unless we consider taxes as debts) to run a business...

Nevertheless, it all boils down to producers profits

[Lauda]

Anonymity all over again.

[chaoticbrain]

Well I think we can assume that the amount of people who lose coins will be pretty small, and therefore it will only be slightly deflation if it takes off as a currency.

[deisik]

Well I think we can assume that the amount of people who lose coins will be pretty small, and therefore it will only be slightly deflation if it takes off as a currency.

Deflation is not about losing coins in particular or decreasing money supply in general. It is not the opposite of inflation in the sense of money supply expansion...

[nodroids]

And the opposing religions on the definition of 'inflation' take over the debate again.

[deisik]

And the opposing religions on the definition of 'inflation' take over the debate again.

This topic is about deflation, i.e. Bitcoin being not deflationary (as doubtful as it may sound). There is only one true religion on the definition of "deflation", all others being outrageous heresies or just blatant ignorance of terminology...