Is the money printing / devaluing dollar argument for buying Bitcoin overrated?

[brainactive]

Unpopular opinion but hear me out:

- If you want your currency to be a store of value as well as a medium of exchange then yes a devaluing currency is gonna be crap because your purchasing power will dwindle over time
- But if we think of a currency as simply a medium of exchange then mild devaluing of currency isn't a huge deal since you are incentiveisd to keep majority of your wealth in assets
- Bitcoin doesn't solve this. It just gives you another asset to store your wealth.
- Even if it got to the stage where everyone owned some Bitcoin we are still back at square one. The money printer is still on and all we have is another asset amongst many including gold, stocks, real estate etc.
- Money will still slosh around these assets. Most money will still be in assets rather than currency (as is currently the case)
- We are back at square one

Thoughts?

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[UKprod]

I would like to provide my thoughts in this aspect

- But if we think of a currency as simply a medium of exchange then mild devaluing of currency isn't a huge deal since you are incentiveisd to keep majority of your wealth in assets
- Bitcoin doesn't solve this. It just gives you another asset to store your wealth.

Yes, while mild devaluing of currency is isn't a problem, it doesn't stop there. What generally happens is that Governments print a lot of currency to fill in the fiscal deficit or give money as helicopter money which leads to heavy inflation. While Zimbabwe is an exaggerated example, it is important to learn from their mistakes. Moreover, Bitcoin isn't just an asset. It works as a currency as well and can be used to transact with other people.

- Even if it got to the stage where everyone owned some Bitcoin we are still back at square one. The money printer is still on and all we have is another asset amongst many including gold, stocks, real estate etc.

I hope you are aware that Bitcoin that are issued keeps reducing and stops in 2140. So, the issue of Bitcoin happens at a slow sustainable rate and hence it doesn't get devalued. Further, once everyone has bitcoin, we may see a day where all transactions happen just over Bitcoin.

- Money will still slosh around these assets. Most money will still be in assets rather than currency (as is currently the case)

It's a free world. So people can hold their preferred assets. Bitcoin, as a medium of exchange, will only facilitate in the transaction. You can't eat bitcoin or wear bitcoin. Or did you have some other point here?

I hope I was able to contribute to the discussion, would be happy to have your responses and have a healthy discussion around this.

[mk4]

- But if we think of a currency as simply a medium of exchange then mild devaluing of currency isn't a huge deal since you are incentiveisd to keep majority of your wealth in assets
- Bitcoin doesn't solve this. It just gives you another asset to store your wealth.

Yes, people leave their funds in assets to prevent devaluation. But the thing is, not everyone can afford investing in other assets (e.g. those who live paycheck to paycheck). With Bitcoin, they have an asset to store their wealth, but at the same time have something to pay with (assuming mass retail adoption comes, of course). It's pretty much 2 in 1.

[DannyHamilton]

- Money will still slosh around these assets. Most money will still be in assets rather than currency (as is currently the case)
- We are back at square one

Thoughts?

If you could choose to store value when you are not using it in either a depreciating currency or an appreciating asset, which would you choose?

It seems the logical answer is to store it in an appreciating asset.  If that's so, then why do people store any value at all in cash or cash equivalents such as checking or savings accounts? I suspect it's due to a need for liquidity and the friction and costs associated with moving value from an appreciating asset to the currency when they need/want to use some of that value for a product or service.  There are both costs and delays involved. Therefore, people hold some of their value in cash, and then replenish that from an asset when the cash balance runs low.  If I want to fill my fuel tank with gasoline, I can't spend my real estate, or my precious metals, or my fine art, or my stocks, etc.

However, imagine an appreciating asset that can be spent as cheaply and as easily as cash.  No need to sell off a $100,000 painting when you want to add $100 of fuel to your car (and then figure out what asset to put the remaining $99,000 into).  Instead, just rip off a $100 corner of the painting, and hand it to the gas station attendant.  Ok, that isn't going to work with fine art.  But, how about with an appreciating asset such as Bitcoin.  No need to sell an entire $35,000 bitcoin, just send the fuel company $100 worth of your bitcoin and move on.

One big reason that crypto is so amazing and is likely to eventually become mainstream is BECAUSE the preference for most individuals is for most money to be in assets, and having all the value that would have been in cash in crypto such as Bitcoin instead allows the individual to keep more value in assets while avoiding the costs and delays involved with other asset classes.

Once everyone is storing all the value for their short term needs/wants in Bitcoin, and most merchants are accepting Bitcoin as payment for products and services, there is no longer much need for cash as a currency any longer.  We aren't back at square one.  We've moved on to square two where the depreciating currency is abandoned by most people for most purposes, and is replaced with an appreciating asseet that can be used as a currency just as easily.

[Welsh]

- Bitcoin doesn't solve this. It just gives you another asset to store your wealth.

I like to think Bitcoin isn't the solution, but the foundation set out for the future. Bitcoin doesn't address every problem we have with the current systems in place, and indeed it brings its own issues to fruition. However, I think we can all agree that the freedom Bitcoin gives in managing your own money or store of value, is much better than the current trust the general public place in others such as banks.

I think DannyHamilton pretty much covers the rest of your questions/issues. 

It seems the logical answer is to store it in an appreciating asset.  If that's so, then why do people store any value at all in cash or cash equivalents such as checking or savings accounts? I suspect it's due to a need for liquidity and the friction and costs associated with moving value from an appreciating asset to the currency when they need/want to use some of that value for a product or service.  There are both costs and delays involved. Therefore, people hold some of their value in cash, and then replenish that from an asset when the cash balance runs low.  If I want to fill my fuel tank with gasoline, I can't spend my real estate, or my precious metals, or my fine art, or my stocks, etc.

Absolutely spot on. There's also the addition of the appreciating assets potentially being a very speculative market, and therefore have a sort of risk associated with them, that their cash doesn't. Of course, there are risks with cash, and storing your values in banks especially if there's no act to prevent loss, or you are over the threshold that some western governments cover.

[BrewMaster]

- Even if it got to the stage where everyone owned some Bitcoin we are still back at square one. The money printer is still on and all we have is another asset amongst many including gold, stocks, real estate etc.

this part makes no sense. first of all bitcoin is not like gold, stocks or real estate. you can't use any of those "assets" as payment, for example when you want to buy a cup of coffee but you can do it with bitcoin. and in your scenario when everyone has bitcoin they will be accepting it as payment.
when they keep printing money you shouldn't care anymore as you already have bitcoin that appreciates in price or keeps its purchase power.

[hatshepsut93]

This narrative is a bit overrated, because some bitcoiners expect to see Zimbabwe-style hyperinflation of dollar, and this is very unlikely to happen anytime soon. Even recently the US decided to take measures to slow down the inflation, which contributed to Bitcoin's price drop, as this bull run started over fears of inflation in the first place.

But still Bitcoin is a good long-term asset, and it's more convenient than gold or real estate, because it was created as a currency. So the money printing argument is not completely invalid.

[o_e_l_e_o]

- But if we think of a currency as simply a medium of exchange then mild devaluing of currency isn't a huge deal since you are incentiveisd to keep majority of your wealth in assets

One thing which hasn't been touched on yet by the replies above is that keeping your money in assets instead of fiat is not always possible. It might be easily done for relatively well off people in relatively well off countries, but it is out of the reach of a huge proportion of the global population. Huge numbers of people from poorer countries are completely unbanked and live solely on cash. Billions of people are in poverty or live paycheck to paycheck, and may only have a very small amount of savings (if any) to their name, which they need instant access to for emergencies. How are these people supposed to buy gold, stocks, or real estate? It is nearly impossible. However, even a few bucks in cash can be fairly easily traded for bitcoin, and it requires no bank account, no ID verification, no third party custodians to turn you down or refuse your purchase.

And, as pointed out above, these people may not need to worry about trading bitcoin back to cash for emergencies, as they can potentially spend their bitcoin directly.

[odolvlobo]

...then mild devaluing of currency isn't a huge deal

Mild devaluation is bad, especially when it is continuous and done on a large scale.

Even if it got to the stage where everyone owned some Bitcoin we are still back at square one. The money printer is still on and all we have is another asset amongst many including gold, stocks, real estate etc.

Bitcoin is better as a currency than gold, stocks, real estate, and fiat of course.

[just_Alice]

Generally, it would have been a nice argument only in case of full fiat substitution with cryptocurrency that has a limited supply, which we all know isn't happening anytime soon.
You're right that it would be just as good as keeping your wealth in other assets to avoid devaluation, but the main advantage of crypto here is that it's easier to purchase. You can buy different types of coins (3-4 most reliable, just in case) within minutes, and if you happen to need the money right away you can sell it just as easily, with a minimum loss, which would be basically determined by price volatility and transaction speed. What about other assets? Do you know how to buy and sell some gold or real estate just as quickly and easily?

[brainactive]

Thanks for all the excellent responses. I have one remaining question related to this topic:

Once everyone is storing all the value for their short term needs/wants in Bitcoin, and most merchants are accepting Bitcoin as payment for products and services, there is no longer much need for cash as a currency any longer.  We aren't back at square one.  We've moved on to square two where the depreciating currency is abandoned by most people for most purposes, and is replaced with an appreciating asseet that can be used as a currency just as easily.

Once we get to this stage, we have a currency thats also an appreciating asset. This means that compared to a fiat world, more people would be incentivised to keep some of their wealth in the currency rather than assets such as stocks. Doesn't this disincentivise investment in businesses and therefore have a negative impact on economic activity? Would this then be one of the problems with Bitcoin as global currency?

[odolvlobo]

Once we get to this stage, we have a currency thats also an appreciating asset. This means that compared to a fiat world, more people would be incentivised to keep some of their wealth in the currency rather than assets such as stocks. Doesn't this disincentivise investment in businesses and therefore have a negative impact on economic activity? Would this then be one of the problems with Bitcoin as global currency?

Yes, but saving is a good thing. It reduces risk.

Typical Keynesian economics views any deflation as a serious problem, but deflation is no worse than inflation in my view. When people talk about the risks of deflation, they typically leap to hyper-deflation as if it is a foregone conclusion. But, I believe that is no more valid than the idea that any inflation will inevitably lead to hyper-inflation.

[brainactive]

Yes, but saving is a good thing. It reduces risk.

Typical Keynesian economics views any deflation as a serious problem, but deflation is no worse than inflation in my view. When people talk about the risks of deflation, they typically leap to hyper-deflation as if it is a foregone conclusion. But, I believe that is no more valid than the idea that any inflation will inevitably lead to hyper-inflation.

Both saving and investment are good.

An inflationary currency may or may not lead to hyperinflation (some countries have stronger currencies some have weaker. But one can argue that in the long term it likely leads to hyperinflation.

A deflationary currency like Bitcoin may or may not lead to hyperdeflation (some countries will some countries to a lesser extent) but in the long term it is likely to lead to hyperdeflation.

This is because of the way incentives are set up under both systems. They have have advantages and flaws but it's not immediately clear to me why a deflationary currency is better than an inflationary one. It seems like just a trade off between saving / investment.

[G-Money7777]

20% of the money ever printed was in 2020.... I don't even have the time to calculate 2021.


Enough said

[Kakmakr]

Is Bitcoin a good store of value in the short-term? Answer : No, not if you buy bitcoins when Bitcoin is in a recovery phase. Is Bitcoin a good store of value in the long-term? Answer : Definitely YES, because some people have made more than 800% profit on their bitcoins that they bought ...when the price hit a new ATH.

This is one of the biggest challenges when you want to use Bitcoin as a currency and when Bitcoin is in a recovery phase, because it can loose almost 50% of it's value.. depending on when you bought. 

[o_e_l_e_o]

Would this then be one of the problems with Bitcoin as global currency?

I don't think so. People already keep significant amounts of their wealth in cash, fiat savings, or fiat equivalents, and I don't think this will change.

If bitcoin reaches the stage of a truly global currency, then yes, it will still appreciate, but at a much slower relative rate than it has done historically. $1,000 to $100k is a 100x gain, but $100k to $200k is only a 2x gain. We are completely spoiled at the moment with bitcoin being the best performing asset for several years, but at the stage of it being a global currency, I expect the slow appreciate in price will be able to be outperformed by a number of other investments, notably real estate and the right stocks or shares. People will always be looking for the optimal returns, and people will always want to diversify for risk reduction.

[kryptqnick]

Devaluation of a currency is supposedly good because it motivates to spend money, not hodl it. However, there's no conclusive evidence against a devaluating currency. Moreover, Japan, one of the biggest economies in the world, has an effectively stayed afloat with a devaluating currency. I think they see it as a bit of a problem as well, but it's still a pretty successful case. And there are lots of cases when inflation got wrong, and yet nobody abandons it as a central financial approach to a currency, so I'd say a deflating currency is an underresearched topic.

[DannyHamilton]

Once we get to this stage, we have a currency thats also an appreciating asset. This means that compared to a fiat world, more people would be incentivised to keep some of their wealth in the currency rather than assets such as stocks. Doesn't this disincentivise investment in businesses and therefore have a negative impact on economic activity? Would this then be one of the problems with Bitcoin as global currency?

The deflation due to the reduction of supply (permanently lost bitcoins) will be slow. I doubt that more than 1% of the entire world's wealth will be lost in bitcoin transaction mistakes.  Stocks, bonds, and other investments generally have a much higher rate of return than that.  When a business is using bitcoin to purchase stuff, and accepting bitcoin for the sale of stuff, and holds bitcoin on their balance sheet, then any increase in the value of bitcoin (due to deflation) will increase the value of the company IN ADDITION TO any profit the business generates from the products or services it provides.  Therefore, investing in a business will be a way to increase the amount of bitcoin that you hold.

As such, I expect that funds beyond those which an individual needs immediate access to will still be invested into growing the economy (and one's personal net worth).

Remember that, right now, people still think about value in terms of their local currency.  The fact that 1 Bitcoin used to be the value of a Big Mac and is now the value of a new car isn't how people think of it, they think of it in terms of how many dollars (or euros, or yen, or rupees, etc) the Bitcoin is worth.  When Bitcoin is ubiquitous, people won't think as much about how many dollars their bitcoin can get them (since it won't matter). Especially if that value (relative to the things it can purchase) is growing at a rate of 1% or less per year.  Instead, they'll think about their net worth in terms of Bitcoin itself.  Growing one's net worth will mean growing the amount of Bitcoin one holds.  That can be accomplished by working a job that pays bitcoin, and spending less bitcoin than you earn.  But it can also be accomplished by investing some of that unspent bitcoin in a business and sharing in its success.