[2020-04-26] Global Deflation May Not Be Bad News for Bitcoin

[Betwrong]

~

I understand this, but why should we imply that Bitcoin price would stagnate during this time? We all know that Bitcoin price doesn't depend on the events in the physical world, and that's why it's so unpredictable. The purchasing power of 1 BTC can rise 100% in a matter of weeks, or drop 50% in the same time-frame. The effect of fiat deflation/inflation on the Bitcoin purchasing power is so negligible that we can safely ignore it.

It might be because the writer of that article also understands and accepts that bitcoin is usually only used as a speculative investment today. In a condition of economic deflation, the velocitiy of money is down, the amount of money every that human being owns is low and economic activity is also very slow.

So, according to you, Bitcoin price should stagnate when the overall economic activity is slow? Aren't we seeing a different picture on the crypto markets today? Or is it because the economic activity isn't slow enough still, and the times described in the article are yet to come?

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[figmentofmyass]

So, according to you, Bitcoin price should stagnate when the overall economic activity is slow? Aren't we seeing a different picture on the crypto markets today? Or is it because the economic activity isn't slow enough still, and the times described in the article are yet to come?

there are a few possibilities that stick out in my mind:

1. too much uncertainty in the markets. the market isn't sure if we're recovering or entering a depression, or somewhere in between.
2. deflation = prices down, but many believe the money supply inflation (printing) will outweigh the effects of deflation.
3. markets are not always efficient, meaning they can be very irrational. smith and keynes were big believers in the idea that irrational behavior has a significant impact on markets. even if the above theory is correct, it may take the market a while to realize it.

enjoy the roller coaster ride.

[bbc.reporter]

~

I understand this, but why should we imply that Bitcoin price would stagnate during this time? We all know that Bitcoin price doesn't depend on the events in the physical world, and that's why it's so unpredictable. The purchasing power of 1 BTC can rise 100% in a matter of weeks, or drop 50% in the same time-frame. The effect of fiat deflation/inflation on the Bitcoin purchasing power is so negligible that we can safely ignore it.

It might be because the writer of that article also understands and accepts that bitcoin is usually only used as a speculative investment today. In a condition of economic deflation, the velocitiy of money is down, the amount of money every that human being owns is low and economic activity is also very slow.

So, according to you, Bitcoin price should stagnate when the overall economic activity is slow? Aren't we seeing a different picture on the crypto markets today? Or is it because the economic activity isn't slow enough still, and the times described in the article are yet to come?

Yes of course. Cryptocoin markets and others like the stock market and the real estate market should stagnate during a period of high unemployment, low GDP and recession.

Also, yes, the present situation might not be the worst yet. However, we might be in this situation similar to the 2 years before the 2008 housing debt crisis in America. Those 2 years before were pumping the markets of no strong economic fundamentals. This is not sustainable.

[Betwrong]

So, according to you, Bitcoin price should stagnate when the overall economic activity is slow? Aren't we seeing a different picture on the crypto markets today? Or is it because the economic activity isn't slow enough still, and the times described in the article are yet to come?

there are a few possibilities that stick out in my mind:

1. too much uncertainty in the markets. the market isn't sure if we're recovering or entering a depression, or somewhere in between.
2. deflation = prices down, but many believe the money supply inflation (printing) will outweigh the effects of deflation.
3. markets are not always efficient, meaning they can be very irrational. smith and keynes were big believers in the idea that irrational behavior has a significant impact on markets. even if the above theory is correct, it may take the market a while to realize it.

enjoy the roller coaster ride.

Bitcoin has always been a roller coaster ride. But from what I remember its price was never dependent on what was happening in the world of stock markets. Many people predict its price will rise amid the overall economic depression, but I think it can either rise or fall independently. Events that are happening in the world of crypto are much bigger factors than anything else in this regard.

~

Yes of course. Cryptocoin markets and others like the stock market and the real estate market should stagnate during a period of high unemployment, low GDP and recession.

Also, yes, the present situation might not be the worst yet. However, we might be in this situation similar to the 2 years before the 2008 housing debt crisis in America. Those 2 years before were pumping the markets of no strong economic fundamentals. This is not sustainable.

Right, but will Bitcoin price be influenced by all of that is a big question.

[bbc.reporter]

@Betwrong. It will considering that bitcoin is used substantially as a speculative investment by many than a type of currency for daily purchases. Observe how the price pumps and dumps on the exchanges.

[figmentofmyass]

there are a few possibilities that stick out in my mind:

1. too much uncertainty in the markets. the market isn't sure if we're recovering or entering a depression, or somewhere in between.
2. deflation = prices down, but many believe the money supply inflation (printing) will outweigh the effects of deflation.
3. markets are not always efficient, meaning they can be very irrational. smith and keynes were big believers in the idea that irrational behavior has a significant impact on markets. even if the above theory is correct, it may take the market a while to realize it.

enjoy the roller coaster ride.

Bitcoin has always been a roller coaster ride. But from what I remember its price was never dependent on what was happening in the world of stock markets.

that's arguable. bitcoin and stocks rose together in a decade-long bull market. they crashed together this year. ever since then, they have become correlated assets.

it's not necessarily that bitcoin follows stocks. they are both viewed as risk assets, and investors are probably reacting to the same macro fundamentals. an economic crash and recession means institutions switching towards risk-off investments/cash and retail investors losing jobs, making them more likely to sell and less likely to invest.

i don't think they'll keep moving together forever, but it might keep up for a while as long as there is so much economic uncertainty ahead.

[Betwrong]

there are a few possibilities that stick out in my mind:

1. too much uncertainty in the markets. the market isn't sure if we're recovering or entering a depression, or somewhere in between.
2. deflation = prices down, but many believe the money supply inflation (printing) will outweigh the effects of deflation.
3. markets are not always efficient, meaning they can be very irrational. smith and keynes were big believers in the idea that irrational behavior has a significant impact on markets. even if the above theory is correct, it may take the market a while to realize it.

enjoy the roller coaster ride.

Bitcoin has always been a roller coaster ride. But from what I remember its price was never dependent on what was happening in the world of stock markets.

that's arguable. bitcoin and stocks rose together in a decade-long bull market. they crashed together this year. ever since then, they have become correlated assets.
~

I tried to find a correlation between Bitcoin and stocks, but I failed.

Here's 10 years price chart

for AAPL:

for GOOGL

Dow Jones - 10 Year Daily Chart:

To be honest, I see little to no correlation with the Bitcoin price here. But maybe I'm looking in the wrong places?

[figmentofmyass]

To be honest, I see little to no correlation with the Bitcoin price here. But maybe I'm looking in the wrong places?

you really don't see it?

okay, let's try something else. asset correlations are measured on a scale of -1 to 1, with 0 indicating no correlation. 0.7-1 indicates a high level of positive correlation.

this is BTC-USD compared with the dow jones:



https://unicornbay.com/tools/asset-correlations

[Betwrong]

To be honest, I see little to no correlation with the Bitcoin price here. But maybe I'm looking in the wrong places?

you really don't see it?

okay, let's try something else. asset correlations are measured on a scale of -1 to 1, with 0 indicating no correlation. 0.7-1 indicates a high level of positive correlation.

this is BTC-USD compared with the dow jones:



https://unicornbay.com/tools/asset-correlations

Thank you! To be honest, I had no idea about those tools.

So, there is some positive correlation between BTC's and some other top assets' performance.

But now I am a bit confused. Does it mean that people who want to diversify their investments won't be looking into Bitcoin's direction because they should rather be investing in asset classes that demonstrate little or no correlation to one another?

[figmentofmyass]

Thank you! To be honest, I had no idea about those tools.

So, there is some positive correlation between BTC's and some other top assets' performance.

But now I am a bit confused. Does it mean that people who want to diversify their investments won't be looking into Bitcoin's direction because they should rather be investing in asset classes that demonstrate little or no correlation to one another?

something to consider is that correlation =/= they have the same returns. bitcoin obviously has much higher upside potential because the supply is so scarce and the market is so illiquid.

the correlation won't hold forever either. who knows where all this money printing will lead? runaway inflation could cause a big separation of "soft assets" like stocks and "hard assets" like gold and bitcoins.

[bbc.reporter]

@Betwrong. There is no some correlation between bitcoin and the Dow Jones. There is very high correlation between bitcoin and the Dow Jones. If you ask yourself why and be honest with yourself, you would accept the argument that bitcoin is indeed being used predominantly as a speculative asset. This implies pumping and dumping by whales on leverage, tether printing to manipulate price, clickbots on social media to create and control the storyboards.

Also many others that JK Rowling can write stories about hehehe.

[Betwrong]

@Betwrong. There is no some correlation between bitcoin and the Dow Jones. There is very high correlation between bitcoin and the Dow Jones. If you ask yourself why and be honest with yourself, you would accept the argument that bitcoin is indeed being used predominantly as a speculative asset. This implies pumping and dumping by whales on leverage, tether printing to manipulate price, clickbots on social media to create and control the storyboards.

Also many others that JK Rowling can write stories about hehehe.

But if there is a "very high correlation", what does it tell us about the Dow Jones then? Is there the same volatility among the largest companies' stocks performance?

Also, I thought we could call it a correlation if DJIA went deep down in the beginning of 2018, and never fully recovered the same year and the year after that. But that's not what were happening to DJIA:



Yes, that tool from above is saying that there is a high level of positive correlation, but why can't we see it comparing the charts?

[bbc.reporter]

@Betwrong. However, the small differences does not cancel figmentofmyass' reply and the % of correlation shown to you. 84.2 is very high, I reckon.

https://unicornbay.com/tools/asset-correlations

It is the data that matters.

[Betwrong]

@Betwrong. However, the small differences does not cancel figmentofmyass' reply and the % of correlation shown to you. 84.2 is very high, I reckon.

https://unicornbay.com/tools/asset-correlations

It is the data that matters.

Well, I accept that. I'm not in a position to have the right to question this tool, I don't have enough knowledge for that. I'm just trying to understand, being a newbie in this field, why there are such loose requirements for two graphs to be called having "very high correlation"? I mean, is it intrinsic to economy in particular? Because in other fields those two graphs, for DJI and BTC-USD, would be called having Low Positive Correlation, at best.