What would happen in a deflationary hoarding scenario?

[PhoenixZephyrus]

I'm currently going through a Bitcoin course for developers while studying for Summer of Bitcoin. Well I came across a pretty interesting scenario and I'm wondering what's going to happen if that were to be the case.

Since Bitcoin is by definition, deflationary, because it has a limited supply, it will supposedly have more purchasing power over time (assuming good adoption and acceptance of bitcoin). Bitcoin is limited to 21mil forever. I quote from the course,

Many economists argue that a deflationary economy is a disaster that should be avoided at all costs. That is because in a period of rapid deflation, people tend to hoard money instead of spending it, hoping that prices will fall. Such a phenomenon unfolded during Japan's "Lost Decade," when a complete collapse of demand pushed the currency into a deflationary spiral.

Deflation in bitcoin is not caused by a collapse in demand, but by a predictably constrained supply. Now what would happen if people did start suddenly hoarding? I mean HODL is just a huge meme at this point but what if EVERYONE actually did that? What would things look like then?

[Husires]

There is something in our minds called greed and fear. These two will make you think of selling, even if you know that the price will rise in the future, especially if you have a lot of basic needs besides food, drink, rent, and daily expenses.

Therefore, there are always those who will be ready to sell, but the instinct of greed is what restrains the sale, but in moments the sale is ideal, such as selling at the top of 60K and buying at 16K.

[Coin_trader]

If everyone HOLD then the price won’t move and stay as is on the time when mass hodling started since no one is selling too because everyone will just keep their Bitcoin to their wallet unless you provide some exceptions that exchange will still sell with their own liquidity.

Altcoins will pump to the moon since investors will find other investment opportunities to have a same profitability like Bitcoin.

[NeuroticFish]

Since Bitcoin is by definition, deflationary, because it has a limited supply

I think that deflationary means that the supply is meant to decrease and in case of bitcoin, especially in the last 5 years, I expect that the amount of bitcoins lost is tiny.

Now what would happen if people did start suddenly hoarding? I mean HODL is just a huge meme at this point but what if EVERYONE actually did that? What would things look like then?

Well, at least the miners cannot just keep HODLing, they are businesses that have to pay their bills and they can do that only by selling some of the coins they obtain.
(Plus, I think that there's pretty much always a price target for the HODLers, and after that target is met, they'll also sell some.)

[Cryptomultiplier]

Unless people are into trading big time, I don't think many coin holders care to spend their Bitcoin or any alt coins they hold these days. Only that this time it gets worse because with the rising cost of prices, people just feel it would be safer to save more after sorting bills and spend less till the tides change. Hence why many HODL.

Am sure it wouldn't get to the hoarding stage where people start looking for who to buy or trade crypto with because as long as basic bills need to be paid and with the more reliance of emerging entrepreneurs on Bitcoin, people will always find a way to make profit from the situation. I.e. if more persons hoard, those willing to sell will increase their price. When nothing is left to sell after a certain limit, those who hoarded will finally opt to sell with good prices at their own time.
As hot as crypto currency is today I doubt it will feel a deflationary scenario as much as those who buy or sell petroleum products.

[mk4]

If literally everyone just held then the price will simply freeze — simply because no one's selling hence no one could buy. Obviously this is literally impossible to happen because there will always be sellers even if the markets are very very bullish.

[bittraffic]

The buyers will have to raise thier price in order for their order to be filled. There will always be someone willing to sell thier BTC for the right price. If no one will sell because everyone really is HODLING, I guess the next altcoin will move the crypto market.

But it's a sure thing to happen when the market gets overbought in the bull season, tarders normally sell because they expect the dump to happen.

[Doan9269]

Since Bitcoin is by definition, deflationary, because it has a limited supply, it will supposedly have more purchasing power over time (assuming good adoption and acceptance of bitcoin). Bitcoin is limited to 21mil forever. I quote from the course,

Many economists argue that a deflationary economy is a disaster that should be avoided at all costs. That is because in a period of rapid deflation, people tend to hoard money instead of spending it, hoping that prices will fall. Such a phenomenon unfolded during Japan's "Lost Decade," when a complete collapse of demand pushed the currency into a deflationary spiral.

Your first mistake here is without providing a link to this aspect quoted by you, this will give us proper check in understanding the right channel the author was addressing wjen saying that that a reflationary economy is a disaster, ours here is a digitally decentralized network with bitcoin and it was not stated that bitcoin is what was being referred to here nor a digital economy, the word deflationary can be used on different contexts, the reason why i said you would have provided the link for referencing this article you posted.

Now what would happen if people did start suddenly hoarding?

Have you even consider the fact that bitcoin is a currency anyone can spend digitally, which means the global distribution of bitcoin isn't limited to a certain place or some caliber of people, there will also be a demand and supply as long as it existed, those hoarding won't do that for life, they more they release the lower the price the higher the demand which will also geared up the price to surge higher as the demand increases.

[Ucy]

I'm currently going through a Bitcoin course for developers while studying for Summer of Bitcoin. Well I came across a pretty interesting scenario and I'm wondering what's going to happen if that were to be the case.

Since Bitcoin is by definition, deflationary, because it has a limited supply, it will supposedly have more purchasing power over time (assuming good adoption and acceptance of bitcoin). Bitcoin is limited to 21mil forever. I quote from the course,

Many economists argue that a deflationary economy is a disaster that should be avoided at all costs. That is because in a period of rapid deflation, people tend to hoard money instead of spending it, hoping that prices will fall. Such a phenomenon unfolded during Japan's "Lost Decade," when a complete collapse of demand pushed the currency into a deflationary spiral.

Deflation in bitcoin is not caused by a collapse in demand, but by a predictably constrained supply. Now what would happen if people did start suddenly hoarding? I mean HODL is just a huge meme at this point but what if EVERYONE actually did that? What would things look like then?

Generally a reduction in supply of something of value that is in high demand will drive the price up. Same would happen to Bitcoin when the demand is high while people are holding. They will likely sell/buy higher
But when we talk about Bitcoin being deflationary we are mostly talking about the "periodic" reduction in the number of bitcoins that are produced at the code level,which also means the reduction in supply of bitcoins.

The Japanese example was probably caused by low demand for goods (and services) which were probably high in supply (higher than is needed by the population) or the people decided to spend less money to save more, or were unable to buy what they needed. In that case the supply of goods will be higher than demand and the prices of the goods would fall against the national currency which is in high demand, demand higher than its supply.  You don't call that a disaster if prices of things are getting cheaper because people aren't buying things they don't need. Or maybe they decide to start producing those things themselves thereby increasing their supply which consequently makes their prices to decrease. The surplus could be exported (assuming they are of good quality) which can further increase the value of the national currency.
A deflationary Bitcoin due to people producing more than they consume, based on hardwork(with its accompanying proof-of work) is more suitable for Bitcoin, and it's what Bitcoin is built for (Hardwork/PoW). I have seen fools trying that on Cryptos without hardwork/work or without producing much and they will completely fall apart.

[Synchronice]

Deflation in bitcoin is not caused by a collapse in demand, but by a predictably constrained supply. Now what would happen if people did start suddenly hoarding? I mean HODL is just a huge meme at this point but what if EVERYONE actually did that? What would things look like then?

There is no point to HODL bitcoin forever because there are alternatives and these alternatives are good too. Hoarding will only make sense if there is a demand on one product that everyone wants and chases but somehow there are no alternatives on the market. Since Bitcoin has alternatives, with diverse nature that will fulfill demand from people, hoarding will only kill it.

Imagine, people buy and HODL Coca-Cola. What do you think, will it increase Coca-Cola's price? Or stock prices? People will actively seek for alternatives and there are tons of alternatives, including Pepsi, Dr Pepper and so on. People will start consuming of these products and easily forget Coca-Cola. Then, over time, these becomes habit and long-term, Coca-Cola is in a big lose.

Absolutely the same applies to Bitcoin HODLing.

[blockman]

Now what would happen if people did start suddenly hoarding? I mean HODL is just a huge meme at this point but what if EVERYONE actually did that? What would things look like then?

Dealing with it still going to end up with the law of supply and demand. There will for sure high call for its demand if the majority are hoarding it. But let's deal with the reality that not everyone is going to hold it forever.
We'll eventually go to sell and even of how die-hard we are for bitcoin, it's inevitable that we'll all have our own pace of selling it for our own needs and goals for which we may be required of selling some or all that we have.

[Cryptomiles1]

What actually causes the rise and fall of bitcoin is the trading principle, without the trading circle being completed there would be no price impact or increase in prices. And even as that if there seems to be more holding without selling then the price will be worth nothing because no one wants to release their assets.

[Bushdark]

There is something in our minds called greed and fear. These two will make you think of selling, even if you know that the price will rise in the future, especially if you have a lot of basic needs besides food, drink, rent, and daily expenses.

Therefore, there are always those who will be ready to sell, but the instinct of greed is what restrains the sale, but in moments the sale is ideal, such as selling at the top of 60K and buying at 16K.

Everyone had different reasons that can make them to sell there holdings which range from sickness, lack of availability to pay bills and many more. Some persons are just holding for the temporary reason so that when the market goes up, they will swap there coin to stable that does not have volatility so the price will not decrease in price when the market eventually falls.
Selling of your holding need  proper planing so that you will have something important to do with the fund. If people eventually start hoarding there Bitcoin then the price of Bitcoin will increase drastically.

[hatshepsut93]

Many economists argue that a deflationary economy is a disaster that should be avoided at all costs. That is because in a period of rapid deflation, people tend to hoard money instead of spending it, hoping that prices will fall. Such a phenomenon unfolded during Japan's "Lost Decade," when a complete collapse of demand pushed the currency into a deflationary spiral.

This is irrelevant to Bitcoin because Bitcoin is not a widely used currency, so whether people HODL it or dump it, there will be no macroeconomic effects.

If we imagine that bitcoiners just decided to never sell their coins, the price would skyrocket, and so will the temptation to sell at a huge profit. But it's just an unrealistic scenario, so I don't see any point thinking about it.

[SquirrelJulietGarden]

Deflation in bitcoin is not caused by a collapse in demand, but by a predictably constrained supply. Now what would happen if people did start suddenly hoarding? I mean HODL is just a huge meme at this point but what if EVERYONE actually did that? What would things look like then?

Bitcoin is not deflationary.

With each block, new amount of bitcoin will be created to its circulation supply. It will only stop in 2140 when all 21M (20999999.9769 BTC) bitcoins are produced.
Controlled supply

We can consider Bitcoin as deflationary if the amount of new created coins from block rewards is less than amount of lost bitcoins. I think we can only have it after 2140 when no more bitcoins will be added to its total supply but there will be people who lose their coins by losing private key, mnemonic seed.

2009 to 2140: inflationary
After 2140: deflationary

[odolvlobo]

Many economists argue that a deflationary economy is a disaster that should be avoided at all costs. That is because in a period of rapid deflation, people tend to hoard money instead of spending it, hoping that prices will fall. Such a phenomenon unfolded during Japan's "Lost Decade," when a complete collapse of demand pushed the currency into a deflationary spiral.

The "Lost Decade" in Japan was the result of a huge speculative bubble. It was very similar to the 2006-2008 housing bubble in the U.S. that led to the 2008 Financial Crisis, but it was much more pervasive.

The deflation experienced after the "Lost Decade" was a result of the collapse. It was not the cause of the collapse. There was no deflationary spiral.

Furthermore, Japan has been experiencing deflation for decades now. So, if deflation is such a disaster, you would think that the people of Japan would be suffering horribly. But they aren't.

[pooya87]

You can not compare bitcoin with fiat currencies and the economy that relies on them. Bitcoin is not and is not going to be (in the near future) the only payment option or even the dominating payment option. Besides, even the example you used is not that simple. Economy in general is too complicated to be viewed or analyzed like this.

[wxa7115]

I'm currently going through a Bitcoin course for developers while studying for Summer of Bitcoin. Well I came across a pretty interesting scenario and I'm wondering what's going to happen if that were to be the case.

Since Bitcoin is by definition, deflationary, because it has a limited supply, it will supposedly have more purchasing power over time (assuming good adoption and acceptance of bitcoin). Bitcoin is limited to 21mil forever. I quote from the course,

Many economists argue that a deflationary economy is a disaster that should be avoided at all costs. That is because in a period of rapid deflation, people tend to hoard money instead of spending it, hoping that prices will fall. Such a phenomenon unfolded during Japan's "Lost Decade," when a complete collapse of demand pushed the currency into a deflationary spiral.

Deflation in bitcoin is not caused by a collapse in demand, but by a predictably constrained supply. Now what would happen if people did start suddenly hoarding? I mean HODL is just a huge meme at this point but what if EVERYONE actually did that? What would things look like then?

A great deal of the bitcoin ever mined is already being hoarded, so even if we were to assume this process still took place when the adoption of bitcoin was significantly higher, nothing will change because as we can see already right now there are always people willing to sell.

So in the case of an economic crisis bitcoin will reevaluate itself against the different goods and will simply buy more than what it could buy before, and again this is a process we see already so I do not expect such a dramatic scenario like those economists forecast.

[Kakmakr]

It is highly unlikely that we will have a scenario where everyone will be hoarding their coins, because everyone has there "selling" price and traders has to sell to make a profit. (So things will balance out eventually, when the price hits a new all-time-high)

Also, people will be able to pay for higher priced goods, when the price goes higher.. and that will stimulate more movement of coins. I sold some coins when the price was more than 800 times my buying price... so if I can do it, everyone else can do it too. 

[davis196]

1.Deflation is a true disaster for the economy, but the economists are talking about fiat currencies(which are legal tender). Bitcoin most likely will never become widely adopted as a normal currency and a legal tender everywhere around the world. I think that BTC will remain predominantly as a financial asset.
2.There's no possibility in real life, that all Bitcoiners would just HODL and nobody would sell or buy. As the Bitcoin price goes up, more and more HODLers will be tempted to sell their BTC. Also more investors will be tempted to buy BTC, because they see that the price is growing.
A financial market cannot remain static forever. There are always forces, who are pushing the price up or down.