A few more things that many people don’t get:
0. The Bitcoin supply is still inflating. In its earliest years, especially before the first halving, Bitcoin had an extremely high rate of inflation. The inflation rate is now low; and in a few years, it will be negligible. Meanwhile, Bitcoin has already behaved as economically deflationary overall, due to the next item.
I posited in the
"wrong" topic that there will come a time where Bitcoin effectively becomes deflationary. People often accidentally lose access to private keys causing sums of BTC become unspendable. If that rate of loss becomes greater than the rate new BTC enters circulation, then at that point Bitcoin is officially deflationary, but we'll never know for sure when that actually occurs. Is that a fair premise?
Yes, indeed. I have seen the same argument raised elsewhere. Sometimes, unfortunately, it is raised by people who are unaware that there is
no reliable way to measure the number of “lost coins”—or even to estimate that, beyond a very vague guess. Thank you for noting that. People who keep their coins in deep cold storage for years do
not deserve to have their coins presumed lost.
I think that your line of reasoning is obviously correct. However, it suffers a problem that most supply-side arguments ignore: Market demand, which is volatile, is oftentimes more important than supply.
Usually, practical dominance of demand-side economics in Bitcoin overwhelm supply-side considerations. Before the first halving, Bitcoin’s supply-inflation rate was absurdly high! Between the first and second halvings, supply-side inflation was still extremely high. But demand grew so fast that the BTC price went from zero to $12.25 by the first halving, and from there to $652.14 by the second halving. (
Source of price quotes.) As such, Bitcoin has behaved as economically deflationary (price deflation,
for things priced in BTC) even when its supply was
wildly inflating.
The inverse also applies: When demand falls, supply-side considerations cannot create value out of thin air. Many altcoins suffer this problem: They
cargo cult Bitcoin’s supply limitations, or even
burn large portions of their supplies* to try to pump the price; then, they wonder why they fail economically. Simple: Nobody wants the coins.
(
* N.b. that the linked essay essentially admits in other words that many tokens have what are, indeed, the key attributes of a security—and that
ETH will have those attributes after it switches to POS. Uh...
Whoops!)
The question of Bitcoin’s
practical utility as an inflation hedge is a question of demand growth being greater than or equal to supply growth. It is very far from market saturation, so I think it is an excellent long-term hedge against inflation. Betting against BTC now is essentially a prediction that its market is already at or near saturation. It seems like a very poor bet to me! And I think that by the time its market approaches anywhere near saturation, BTC supply inflation will be negligible—effectually negative, for the reason that you explain.
Its volatility can compromise its short- to medium-term qualities in this regard; I think that’s what people are complaining about. People who bought in December 2017, or anytime from December 2020 – early June 2022, who
needed to spend money in mid-June through late July, were definitely at a loss—even nominally, never mind inflation. There is no such thing as a store of value with zero risk of any kind, so I think the solution there is better strategies for handling volatility and risks. It is
very rare for BTC long-term holders to take a loss on long-held coins!
All that being said, I must emphasize: The titular reason for this thread was a question of whether Bitcoin was
intended to be an inflation hedge. It was. That is implicit in its design; and Satoshi himself also said as much explicitly.
Unless my reading comprehension is failing me, no one chimed in to provide a counter argument to it in the other topic.
Probably because with some exceptions, many of the people posting there are just sigspamming.
