Bitcoin will shrink the economy

[BunnyWunny]

If Bitcoin becomes widespread enough that most people hold their savings in it, then it will greatly and permanently reduce liquidity in the financial system, lead to a decrease in consumer spending and cause major ructions in the global economy.

People part with their money easily these days because in the back of their heads they know that what they have in their hand right now, will be worth far less in the future due to inflation. So they spend their money on gratifying goodies now rather than save it for later when, due to a negative real return, it will be worth less. In a Bitcoin world this behavior is reversed. People will understand the resilient and long lasting value of their Bitcoin and not want to part with it unless they are getting something very favourable in return. The psychological hurdle to spending money will be raised in each individual's mind.

This change in the mass consumer psychology that is so important and relevant in the world today will lead to a liquidity crunch. Central banks usually solve the problem of a liquidity crunch by printing money and lending it out cheaply but they won't be able to do this as faith in fiat currencies will already have been so severely degraded by Bitcoin's ascendancy. There will be no answer to people becoming more prudent with how they spend their hard earned bitcoin. It will simply shrink the economy.

In my opinion this will be a good thing as so much of the economic "growth" we see in the world today is a vacuous re-packaging of frivolous fancies to meet imaginary needs fueled by an incentive to spend currency that is always losing value. Things that satisfy a genuine pressing need will continue to be invented, bought and sold and this is all that is necessary for a vibrant healthy economy.

[Dailyscript]

I don't think any economy would shrink.

Not everyone is willing to hold their bitcoins for the long term. And even if they choose to there will be a point in time when they chose to sell off some portion because they have reach their maturity date or need some money. However, there are people who are into trading of Bitcoin than people who are willing to hold it. So the money still circulates around because a lot of people are still willing to sell. As long's there is needs, wants, merriments, vacations and emergencies then people will tap into their Bitcoin.

[franky1]

If Bitcoin becomes widespread enough that most people hold their savings in it, then it will greatly and permanently reduce liquidity in the financial system, lead to a decrease consumer spending and cause major ructions in the global economy.

what you dont realise is the M0 and M1 money that circulates in peoples daily spending is only a few percent of all "money" locked up in different m3 schemes already.. so it wont lock up peoples m0 and m1 money any differently than current schemes

however people will move from investing in stocks and shares to ALSO invest part of their long term m3 money into bitcoin.. so will reduce the amount locked up in traditional m3 financial investment schemes(but how much % is still unknown)

also to note..
when people buy bitcoin. there is no lock up of that cash.. the market cap is not a reserve/vault of money.. its instead just math of taking the current market price and multiplying it.. its just a empty number of math not an allotment of cash locked up.. when someone buys bitcoin, someone else equally sells bitcoin and so the money still circulates by the bitcoin seller receiving cash and then him using that cash in traditional spending ways circulating it normally(m0 m1 circulation for starters)

when money is truly "locked up" its usually in insurance policies or where pension deposits buy shares and then those shares of companies invest in other things and the circulation of M3 is just bouncing around in the tradfi stock/share/insurance/credit markets
(EG invest in a pharma company which then invests in blackrock which then invests in other companies which keep the m3 money bouncing around in m3 markets)

only some of that will come out of the m3 and move into bitcoin and then the sellers either move it into m0 m1 or.. or.. m3 again

..
remember and emphasis this
when buying bitcoin you are not locking your money up into a vault or reserve, the money does not sit around waiting for you. you are instead buying a currency from a seller and that seller is selling bitcoin to get your money to then have them use your money on their personal choices of how they want to spend their money

that money can just circulate in m0 m1 circulation or end up back in m3 investments of tradfi

[Blitzboy]

Bitcoin about challenging the accepted wisdom on money and you're scared about less spending? Good. Perhaps we will start investing in things that truly matter instead of wasting money on garbage we don't need. Regarding this whole liquidity issue, sure, it causes worry. But you have to understand, Bitcoin is evolving faster than most people can even comprehend. Like the early years of the internet. Think back on how slow and awkward it was. Now take another look at it. Likewise for Bitcoin

Embracing Bitcoin is not about shrinking the economy. It's about growing the proper way with actual value, not only figures on a screen. It's about turning our attention from consumption without thought to deliberate investment. It's about realizing that things that last, not the newest trends, define actual riches. Thus, friends, let yourself unwind. Bitcoin will save the economy - it will not bring it down

[Woodie]

If Bitcoin becomes widespread enough that most people hold their savings in it, then it will greatly and permanently reduce liquidity in the financial system, lead to a decrease consumer spending and cause major ructions in the global economy.

Nice write up OP this should really should bring mixed reactions from the community for a healthy debate/discussion.

And I want to agree with you on the possibility of a liquidity reduction should a widespread Bitcoin adoption happen...but then again one of the qualities of money is scarcity, for as long as the central banks aren't printing money to cause inflation then in some way this actually gives fiat value and not liquidity reduction.
Btw, think of it as Bitcoin being a savings account that the banks will benefit from such that the fiat equivalent of holding BTC can easily  be pumped back into the economy to address other business which makes this a win wins scenario, so no need for alarm I guess.

As of consumer spending, it really depends on several factors tbh such as inflation, buying power of fiat or crypto, otherwise Bitcoin doesn't really have this influence over people's spending as its pretty much a parallel economy.

[darkangel11]

If Bitcoin becomes widespread enough that most people hold their savings in it, then it will greatly and permanently reduce liquidity in the financial system, lead to a decrease consumer spending and cause major ructions in the global economy.

This is bullshit Keynesian Economics. It's like saying that people spend only because they're aware of the inevitability of inflation. With no inflation they'd have no reason to spend. How dumb you have to be to believe that? Are you trying to make us believe that people would never buy a new car if they weren't inclined to do so by inflation, or that they would never buy food if they had vehicles that permanently increase their purchasing power?

[Fivestar4everMVP]

In my opinion this will be a good thing as so much of the economic "growth" we see in the world today is a vacuous re-packaging of frivolous fancies to meet imaginary needs fueled by an incentive to spend currency that is always losing value. Things that satisfy a genuine pressing need will continue to be invented, bought and sold and this is all that is necessary for a vibrant healthy economy.

As much as I might want to agree that all that you have said does make a lot of sense, it's still important you understand that the acceptance of bitcoin into the mainstream financial market won't in any way shrink the economy of any country, expect for countries who's economy has or had been previously bad.

Bitcoin is another form of money, and there is no way (not even in the next 30 or 40 years) that Bitcoin will completely wipe out fiat, both will co-exist in harmony, and this is because, people are still going to be needing fiat to invest in bitcoin, which is a means through which bitcoin will become more valuable, and those that live in rural areas where internet is a big problem; are always going to need fiat for their day to day buying and selling transactions.

Every economy will go on as normally, the only thing I see is that alot alot of people are definitely going to be pumping alot of fiat into bitcoin, which may cause the central banks to print even more.

[348Judah]

If Bitcoin becomes widespread enough that most people hold their savings in it, then it will greatly and permanently reduce liquidity in the financial system, lead to a decrease consumer spending and cause major ructions in the global economy.

If bitcoin could have pose a danger to the economy by the way of its increasing in adoption rate to what we are having today, then we would have sensed this right from time as it continues to advance, but to the greatest surprise, there is nothing to fear or risk on with bitcoin adoption in the world economy system than to create several opportunity and our most desired privacy and security in which we wanted with the profitability in it.

[BunnyWunny]

If Bitcoin becomes widespread enough that most people hold their savings in it, then it will greatly and permanently reduce liquidity in the financial system, lead to a decrease consumer spending and cause major ructions in the global economy.

This is bullshit Keynesian Economics. It's like saying that people spend only because they're aware of the inevitability of inflation. With no inflation they'd have no reason to spend. How dumb you have to be to believe that? Are you trying to make us believe that people would never buy a new car if they weren't inclined to do so by inflation, or that they would never buy food if they had vehicles that permanently increase their purchasing power?

Every time my sister makes a dumb purchase she defends it by saying her money won't be worth anything in the future so she may as well spend it now. I do not believe she is an isolated case, and her reasoning isn't wrong either. People, even those who don't know what QE is, intuitively have come to understand that their money will be FAR less valuable in the future. The only way to combat that is to invest but most people think of investing as difficult and risky, so their bias is to spend all of their available income. Bitcoin provides an incentive for people to save their money, the incentive being that their bitcoin won't lose value systematically. This incentive does not exist for fiat due to negative real interest rates and future pending QE. A world in which Bitcoin achieves mass adoption will clearly impact people decisions on what to buy, how much to buy, and at what price.

People will of course still buy the necessities such as food and a car but the psychological hurdle to clear before buying frivolous items will be raised. And of course, economic growth depends exclusively on the sale of increasingly frivolous items.

[Saint-loup]

I don't know where you are living but it's wrong to say that people spend their money easily because they know the money they have currently will be worth far less in the future. Not all currencies lose value actually, not all countries undergo inflation. Some currencies and economies are very strong and the inflation doesn't severely impact them up to now. More importantly, if some goods tend to become rarer, no matter in which currency you will pay them their price will appreciate, even in BTC. Bitcoin doesn't prevent inflation from shortage.

[tread93]

If Bitcoin becomes widespread enough that most people hold their savings in it, then it will greatly and permanently reduce liquidity in the financial system, lead to a decrease in consumer spending and cause major ructions in the global economy.

People part with their money easily these days because in the back of their heads they know that what they have in their hand right now, will be worth far less in the future due to inflation. So they spend their money on gratifying goodies now rather than save it for later when, due to a negative real return, it will be worth less. In a Bitcoin world this behavior is reversed. People will understand the resilient and long lasting value of their Bitcoin and not want to part with it unless they are getting something very favourable in return. The psychological hurdle to spending money will be raised in each individual's mind.

This change in the mass consumer psychology that is so important and relevant in the world today will lead to a liquidity crunch. Central banks usually solve the problem of a liquidity crunch by printing money and lending it out cheaply but they won't be able to do this as faith in fiat currencies will already have been so severely degraded by Bitcoin's ascendancy. There will be no answer to people becoming more prudent with how they spend their hard earned bitcoin. It will simply shrink the economy.

In my opinion this will be a good thing as so much of the economic "growth" we see in the world today is a vacuous re-packaging of frivolous fancies to meet imaginary needs fueled by an incentive to spend currency that is always losing value. Things that satisfy a genuine pressing need will continue to be invented, bought and sold and this is all that is necessary for a vibrant healthy economy.

I definitely think that there is huge potential for Bitcoin to shake the fiat debt based system. It already has and it is currently making history right now with certain current events. The only thing we know for certain right now is to HODL! Don’t pull a Germany lol.

[kryptqnick]

I don't think there's a real chance of most people in the world keeping their savings in Bitcoin. Bitcoin requires having devices and digital literacy that most people don't have, and it also requires a certain level of patience and responsibility. It is also not under any authority's control, which can disturb many people who see the state and other institutions as necessary to gain trust in finances.
In any case, fiat can remain in active use for daily lives and purchases, so its liquidity would be just fine. In fact, it's bad for fiat to be hoarded and de facto out of circulating supply, so if people used BTC for savings and fiat was solely for frequent transactions, it could be good for fiat.

[Helena Yu]

When was Bitcoin the MOST IMPORTANT thing in the world lol, Bitcoin almost give no impact to the global economy.

Worldwide net private wealth stood at $454.4 trillion in 2022, while current Bitcoin's market cap is $1.3 trillion, it's not even reach the 1% of worldwide net private wealth.

I would say corruption is the biggest thing that shrink the economy because the only few people can access to that dirty money, if they have business and they spend it to their business, the money only flow in himself.

[uneng]

In my opinion this will be a good thing as so much of the economic "growth" we see in the world today is a vacuous re-packaging of frivolous fancies to meet imaginary needs fueled by an incentive to spend currency that is always losing value. Things that satisfy a genuine pressing need will continue to be invented, bought and sold and this is all that is necessary for a vibrant healthy economy.

I totally agree with you. The current concept governments have on how an economy should work is totally despicable. They profit from the ignorance and compulsivity of individuals who are likely to live an entire life without making any significant financial progress, because they spend more than they earn in worthless stuff, endorsed by celebrities and influencers they put on an altar. And there are very few people with enough reach to try teaching something different to the masses, as the most influential ones just want to maintain the gears of the system working smoothly.

It's not possible to say if the scenario you mentioned would be the solution for the current problems we face. But someone must try, and to get rid of being a slave of fiat inflationary system seems to be the first step.

[Faisal2202]

This change in the mass consumer psychology that is so important and relevant in the world today will lead to a liquidity crunch. Central banks usually solve the problem of a liquidity crunch by printing money and lending it out cheaply but they won't be able to do this as faith in fiat currencies will already have been so severely degraded by Bitcoin's ascendancy. There will be no answer to people becoming more prudent with how they spend their hard earned bitcoin. It will simply shrink the economy.

I don't get what you mean by when a consumer's psychology will be changed from buying less. I mean they will prefer to buy BTC for long-term investments but they still have to spend money on their daily needs which means they don't have to spend all of their money in BTC but have to keep some money in liquid form that they could use to meet daily expenses. And how the change in the psychology of consumers is going to crunch liquidity and which liquidity are you talking about, I mean if you are talking about fiat then you also mentioned such a problem can be faced in fiat via lending and printing more money, etc.

Overall, people can't just survive by holding BTC in their wallets, they need food, a roof, have to pay bills, etc. So to meet all the expenses they can't just rely on there funds in the form of BTC because in the long run BTC does give profit but in the short term BTC can also make you loss. And a person with mindset of keeping no funds for emergency cases, is consider idiotic because investing in one coin is extremely risky especially when you are spending it all. Even the emergency funds.

[Alpha Marine]

I think the reverse would be the case in my opinion. First of all, when Bitcoin is "widespread" I don't think it would be as volatile as it is today so I also don't think people would make the kind of profit they make today from holding Bitcoin, but that's by the way because we're talking hypothetically.

Millionaires and billionaires today hold the most in long-term investments, but still, it's millionaires who spend the most money. This is to tell you that holding Bitcoin won't affect the way people spend negatively. People who hold Bitcoin also spend money. They have bills to pay too, they go on vacations and throw parties, and they have kids to take care of. The world is not good to abandon all these things simply because they want to hold Bitcoin, it'll be simply business as usual, most likely better because this time, people have more money to spend because they have gotten more from their profits on Bitcoin.
No economy will collapse.

[MusaMohamed]

I don't think any economy would shrink.

Bitcoin has nothing to do with global economy or any national economy.

It is only one more option, one more spice in an economy of a nation, a national treasury, a local community economy, and a family, an individual finance. A world, nations, locals, families, individuals can choose Bitcoin for their treasuries to improve their financial status.

It is more easily achievable at individual and family scales or small local scales but when it is up to a national scale or bigger as global scale, it is responsibility of government, their many agencies, and many combined regulations, actions to achieve better treasury for the nation or the world. It is not responsibility of Bitcoin and Bitcoin does not have any power to change anything from governments and their bank systems.

[BALIK]

I definitely think that there is huge potential for Bitcoin to shake the fiat debt based system. It already has and it is currently making history right now with certain current events. The only thing we know for certain right now is to HODL! Don’t pull a Germany lol.

Bitcoin has huge potential, growth potential is certain but how will it shake up the fiat system? We should not exaggerate bitcoin unnecessarily. After all, bitcoin is only used as an investment asset like gold and it is inflation resistant but that doesn't mean everyone will save with bitcoin. If people wanted to do it and could do it, they would have done it with gold before, not waiting for bitcoin. Bitcoin is not the only inflation-resistant asset in this world.

Do you think the government is stupid enough to legalize bitcoin to shake up the fiat currency system they have built for hundreds of years?

[Poker Player]

It's a bullshit argument based on false premises.

If Bitcoin becomes widespread enough that most people hold their savings in it, then it will greatly and permanently reduce liquidity in the financial system, lead to a decrease in consumer spending and cause major ructions in the global economy.

Looking on the internet I see that in the USA, 22% of the population has no savings and 44% could not pay an unexpected 1K.

So I don't even go into the rest. There are countries that are more thrifty than the USA, of course, but they are the exception rather than the norm.

You could have applied it to gold, which is much more widespread in the population, and has not led to shrink the economy (if gold becomes widespread enough that most people hold their savings in it, then it will greatly and permanently reduce liquidity in the financial system).

[Yucky]

If Bitcoin was to work independent of the fiat, then it's possible to assume that with lots of people holding Bitcoin, it might lead to the reduction of the amount of money in circulation but this is actually not the case. Majority of the peope that are holding Bitcoin only keep a small fraction of thier money which might be as low as 10% to 20% in Bitcoin while the rest is used in daily transactions which still allows money to continue flowing on a regular bases. Even before Bitcoin got this level of adoption it has witnessed, individuals and private firms still HODl money in banks and don't allow it to circulate all that much but it never stopped the free flow of money because in a more ideal sense, it's always a small fraction of your wealth that gets stored or saved up for the future.

The effect of an aggressive level of Bitcoin adoption that are majorly HODLers would be that it will make people to become more responsible with the way they spend whatever comes into their hands because it's way easier to spend money that's in fiat form as opposed to spending your Bitcoin holding.