Bitcoin will shrink the economy

[pawel7777]

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.

That's true for any type of saving: if people save more, they spend less and the economy is shrinking. I don't think the existence of Bitcoin will change the behaviours of masses. It's just those who are into saving, now have another option to do so.
If Bitcoin were to replace fiat currencies in their role of functional, everyday money, then yes, the current financial systems would have to be re-designed.

And I have to add that equating GDP with the health of a country or people's happiness is utter nonsense.

[Abiky]

Even if Bitcoin become widespread and many people saves their money in Bitcoin, that doesn't reduce liquidity in the financial system, lead to a decrease in consumer spending and cause major ructions in the global economy. People have their minds and will do their money for their life and their family so they will spend their money to fills their needs. Perhaps they found Bitcoin as their investment but they make the economy wheel will still running and their government will also use their regulation to make sure they can control their country. If people face an inflation, they will figure out how they can survive in the hard situation and perhaps they will tighten their seat belt until the situation back to normal.Bitcoin will not not shrink the economy although perhaps the economy may be change different than the past.

People will always have the need to sell. Whenever it is for covering their expenses, paying off debt, or just for profit, money will move out of the market as usual. How would this harm or shrink the global economy? It's all of the contrary. Trading Bitcoin or any other cryptocurrency brings huge taxation benefits to the government. Besides, the vast majority of businesses and merchants accept Fiat over Bitcoin. This is mainly because of the volatile nature of the cryptocurrency.

Of course, BTC has grown into a "force to reckon with". But there's a long road ahead before it becomes big enough to challenge the traditional financial system (if it ever does). Bitcoin is only 15 years old. Who knows how will it perform in the future?

[ThemePen]

People will always have the need to sell. Whenever it is for covering their expenses, paying off debt, or just for profit, money will move out of the market as usual. How would this harm or shrink the global economy? It's all of the contrary. Trading Bitcoin or any other cryptocurrency brings huge taxation benefits to the government. Besides, the vast majority of businesses and merchants accept Fiat over Bitcoin. This is mainly because of the volatile nature of the cryptocurrency.

Of course, BTC has grown into a "force to reckon with". But there's a long road ahead before it becomes big enough to challenge the traditional financial system (if it ever does). Bitcoin is only 15 years old. Who knows how will it perform in the future?

Hmmmm... that is right people will always need to buy and sell things which helps economy. Selling Bitcoin or other cryptocurrencies can not hurt economy. Actually governments can benefit from taxes on these sales. Bitcoin has made progress but it is still new and unpredictable so it is not ready to replace traditional money yet. Most businesses do not accept Bitcoin because its value can change quickly. Instead of causing problems Bitcoin growth can work alongside traditional finance and make the economy stronger. We will have to wait and see how Bitcoin does in the future.

[Chimoluu]

Bitcoin will not shrink the economy at all, I'm even of the opinion that Bitcoin is the next big thing

[Sayeds56]

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.

Your post is very interesting and thought provoking about Bitcoin integrating into economy and financial system. There is one thing very clear that due to its deflationary nature it can reduce liquidity and spending that can ultimately have negative impact on growth, but it can provide more freedom to general public and reduce the role of central banks. However, it is important to remember that no government will take the risk of total adoption of Bitcoin, the most practical scenario  could be where Fiat and Bitcoin based financial might run in parallel.

[Scarlett_23]

Investing in Bitcoin does not mean that fiat currencies will disappear.  People save in bitcoins for a certain period of time. If there is no specific period, if bitcoins are held for the whole life, then this resource will not be useful for people's needs.  The purpose of holding Bitcoin for a certain period of time is for the investor to have the fiat money increase over a certain period of time. It does not cause inflation.  Inflation is seen when the money of one country moves to another country when the price of goods increases.

[bananahunter67]

Bitcoin if like digital gold.

[Solokan]

In my opinion, if Bitcoin spreads widely it certainly won't have any impact even though many people put their money in Bitcoin because as we know now there are also many people who put their money in Bitcoin but there is no change and the economy is running smoothly and in my opinion there will be no such thing as reducing financial liquidity because of course most people investing in BTC are looking for profit and what is certain is that at the end of the day they want a lot of money so I don't think there will be such a thing as a decline in financial liquidity, in essence it will run normally as it is now.

and in my opinion there will be no such thing as major economic chaos in the world because in my opinion the system of people in this world is of course looking for profit,  yeah, that's the point is there could be chaos but the chaos there is when someone experiences a loss because of investing in BTC and the cause of the loss is because of a lack of knowledge and don't use money that is ready to be lost, well maybe in my view people like that will create chaos because they are frustrated and don't accept the losses they suffer even though of course it's not BTC's fault but what's wrong is that those who invest don't have knowledge about BTC and don't know how to do it properly and don't ready for the risks posed by BTC.

but if, for example, all people in the world used BTC as a legal means of payment, it would certainly make fiat currency useless. but if, for example, bitcoin is only used as an investment asset and is not used as a legal means of payment in lots countries, of course fiat currency will not decrease even though the number of people holding BTC is large.

[NewRanger]

Investing in Bitcoin does not mean that fiat currencies will disappear.  People save in bitcoins for a certain period of time. If there is no specific period, if bitcoins are held for the whole life, then this resource will not be useful for people's needs.  The purpose of holding Bitcoin for a certain period of time is for the investor to have the fiat money increase over a certain period of time. It does not cause inflation.  Inflation is seen when the money of one country moves to another country when the price of goods increases.

And there are also some investors who consider this to be the simplest and easiest way as their investment vehicle for the long term. Because of the current inflation, the government must adopt policies that are no longer confusing and should not make too many adjustments that will make economists have to constantly rearrange their investment plans. and regarding Bitcoin will shrink the economy in my opinion see I think BTC will always run on its own trajectory.

[MusaMohamed]

Of course, BTC has grown into a "force to reckon with". But there's a long road ahead before it becomes big enough to challenge the traditional financial system (if it ever does). Bitcoin is only 15 years old. Who knows how will it perform in the future?

Bitcoin has only 15 years old but has an impressive growth in developments, adoption, value and price but it won't shrink the economy or expand the economy.

Because Bitcoin price increases because money flow into this market and the capital inflow comes from economy, not self-create by Bitcoin market. The shrink or expansion of an economy in national size or global economy depends on other components that interact with governments, banks and many companies and other things in a nation or the world. Bitcoin can not have a magic power to shrink or expand an economy.

And there are also some investors who consider this to be the simplest and easiest way as their investment vehicle for the long term. Because of the current inflation, the government must adopt policies that are no longer confusing and should not make too many adjustments that will make economists have to constantly rearrange their investment plans. and regarding Bitcoin will shrink the economy in my opinion see I think BTC will always run on its own trajectory.

If governments cared about it, they did not order massive printing commands to central banks to create new money supplies and caused inflation. They can tell you they want this, want that and they're doing this and that to fix inflation, but they lie.

Governments and central banks are the same and they will create inflation, halt it and inform you that inflation is fixed with their intensive efforts, then when you feel better they will print money again.

This chart gives you idea of governments never fix inflation, they create it.

[Sayeds56]

Investing in Bitcoin does not mean that fiat currencies will disappear.  People save in bitcoins for a certain period of time. If there is no specific period, if bitcoins are held for the whole life, then this resource will not be useful for people's needs.  The purpose of holding Bitcoin for a certain period of time is for the investor to have the fiat money increase over a certain period of time. It does not cause inflation.  Inflation is seen when the money of one country moves to another country when the price of goods increases.

You are  right that Bitcoin is primarily used as instrument of investment for the purpose of significant growth in the long term and investment in it it doesn't mean that Fiat currencies will disappear, instead both financial system are likely to co-exist in future. Bitcoin usage as method of payment has not gained much acceptance due to high level of its price volatility which is likely to continue in coming years unless its marketcap reaches to a substantial level, five Trillion dollars or more.

[maydna]

~snip~

People will always have the need to sell. Whenever it is for covering their expenses, paying off debt, or just for profit, money will move out of the market as usual. How would this harm or shrink the global economy? It's all of the contrary. Trading Bitcoin or any other cryptocurrency brings huge taxation benefits to the government. Besides, the vast majority of businesses and merchants accept Fiat over Bitcoin. This is mainly because of the volatile nature of the cryptocurrency.

Of course, BTC has grown into a "force to reckon with". But there's a long road ahead before it becomes big enough to challenge the traditional financial system (if it ever does). Bitcoin is only 15 years old. Who knows how will it perform in the future?

The government will get benefit from the tax especially if they make crypto become legal so they can watch their citizen who use crypto. If the government don't use too high fees for tax, I guess their citizen will obey the rule and will report their wealth in crypto so they will also pay the tax. When many people want to report their wealth to the governemnt and pay the tax, the income to the country will increase and people will have their own additional income from crypto. But that will not sink the economy but Bitcoin can help the grow of the economy both in citizen and the country.

Yes, the journey of Bitcoin still long and we don't know what will happen in the future. But if the government can learn and accept crypto, that will be a chance for the government to take more income from other side.

[Moreno233]

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.

That's true for any type of saving: if people save more, they spend less and the economy is shrinking. I don't think the existence of Bitcoin will change the behaviours of masses. It's just those who are into saving, now have another option to do so.
If Bitcoin were to replace fiat currencies in their role of functional, everyday money, then yes, the current financial systems would have to be re-designed.

And I have to add that equating GDP with the health of a country or people's happiness is utter nonsense.

As of now people spend more than they save and not many people are even saving. When Bitcoin makes it to the mainstream, I'm sure many people will understand how good it is to safe Bitcoin because the value will always be going up unlike fiat that the value will be going down with time due to inflation. When people see how easy it will be to have their money double or increase in multiple folds through Bitcoin holding, they will use the opportunity well and the effect of this will be less money in circulation and shrinking of global economy.

[legendbtc]

That's true for any type of saving: if people save more, they spend less and the economy is shrinking. I don't think the existence of Bitcoin will change the behaviours of masses. It's just those who are into saving, now have another option to do so.
If Bitcoin were to replace fiat currencies in their role of functional, everyday money, then yes, the current financial systems would have to be re-designed.

And I have to add that equating GDP with the health of a country or people's happiness is utter nonsense.

As of now people spend more than they save and not many people are even saving. When Bitcoin makes it to the mainstream, I'm sure many people will understand how good it is to safe Bitcoin because the value will always be going up unlike fiat that the value will be going down with time due to inflation. When people see how easy it will be to have their money double or increase in multiple folds through Bitcoin holding, they will use the opportunity well and the effect of this will be less money in circulation and shrinking of global economy.

Do you think people will hold bitcoin forever and not spend it even if its price increases many times? What is the purpose of investing in bitcoin? Would you sell your bitcoin when its value increases many times? I bet you can't keep it forever without selling it to sustain your life.

Bitcoin's current market capitalization is $1 trillion, while the global GDP is $120 trillion. Do you think bitcoin can make any significant impact on our economy?

Not to mention, governments are trying to promote and grow their economies bigger and bigger, and if bitcoin is hurting the economy, do you think they will continue to let it exist and grow?

[Jon_Hodl]

Unlimited money printing leads to unlimited consumption. (Fiat)
Limited money printing leads to limited consumption. (Bitcoin)

On a bitcoin standard, the economy is likely to "shrink" because people won't piss away their bitcoin on a bunch of stupid fiat crap. That also means that people need to work less as the value of money increases.

The end result would be more meaningful and important production/consumption because people will make less and consume less. It will also result in less zombie companies producing cheap consumer garbage.

I look forward to such an efficient and stable economy.

[pawel7777]

Less consumer spending might slow down some sectors, but it could also encourage more meaningful, need-based innovation rather than just chasing after the next flashy thing. The trade-off could be a more stable economy in the long run, with less inflation-driven waste.

If you're referring to less consumer spending due to deflationary Bitcoin taking over as money, then it would be much worse than just a slow-down. Entire financial systems are based on the assumption of constant economic growth. We've seen experts crying "recession" when the growth was positive, just lower than expected.
Having fiat getting replaced by bitcoin would be a massive shock, in a negative way. It doesn't take all people to completely stop spending money on things they don't need to crash the economy. Even if the average Joes reduced unnecessary spending by 10-20%, it would be a disaster.
Things would probably fix themselves eventually, and a new type of economy would emerge, but it would be far from frictionless.

[Abiky]

Unlimited money printing leads to unlimited consumption. (Fiat)
Limited money printing leads to limited consumption. (Bitcoin)

On a bitcoin standard, the economy is likely to "shrink" because people won't piss away their bitcoin on a bunch of stupid fiat crap. That also means that people need to work less as the value of money increases.

The end result would be more meaningful and important production/consumption because people will make less and consume less. It will also result in less zombie companies producing cheap consumer garbage.

I look forward to such an efficient and stable economy.

If you're talking about people holding BTC and not spending it because of its deflationary nature, then yes, it can affect the economy. Yet, not everyone has the guts to hold on for dear life. Some people will have the temptation to sell BTC once prices go all the way to the moon. They either do it to pay their bills, or simply to cash out for profit. With money moving across the market, I believe BTC will do more good than harm over the mainstream economy. Governments are taxing it, while employment rates are rising due to this nascent industry.

"Unlimited money printing" by central banks will just make BTC more valuable over time. It means greater purchasing power to all of its "hodlers". I'd say there's nothing to worry about. Just buy, "hodl", and forget about the rest.

[HelliumZ]

I don't think bitcoin can shrink a country's economy or bitcoin can play a negative role in a country's economy. As Bitcoin can play a major role in increasing the rate of economic growth in a country, Bitcoin plays an important role in stimulating the country's economy especially by controlling inflation in a country.
How can Bitcoin play a role in shrinking the economy in a country where the world's leading figures are increasing their investments in Bitcoin?
Although Bitcoin has not been accepted in our country, my country ranks 37th in terms of Bitcoin transactions in the world and about 45 lakh people in the country are directly and indirectly dependent on Bitcoin. Earning remittances on Bitcoins has become an important factor in our country's economy and is considered an important source of country's income.

[YUriy1991]

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

This pattern will continue to repeat itself. Of course, the m3 portion will be maximized by looking at which ROI potential is more dominant when they place it and when it can be cashed out, but slots for m0 and m1 must also be there because they are daily needs.

[Forever101]

No matter how widely spread it becomes, it will definitely not replace fiat. Don't forget that many person uses it as investment and store of wealth. If I may ask, would you invest all your money with nothing left to buy things for daily needs?. So as people save for the future , they also reserve for the present, which means the banks can not go out of control but the amount saved in banks may decreased in small percentage.