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Author Topic: Bitcoins effect on the money supply?  (Read 2663 times)
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May 05, 2014, 11:42:09 PM

I take your point Robert but won't the prices for goods in USD and the prices for goods in Bitcoin be connected by the Bitcoin/USD exchange rate. If not and the goods have actually different prices in Bitcoin and USD then people will be able to buy at whichever price is lower and sell at whatever price is higher for a profit until the two prices equalise. Therefore surely Bitcoin adoption does increase the USD money supply by the mechanism that Yenom has suggested. Now Yenom is suggesting that the USD goes into a kind of death spiral and is replaced. I think that actually USD interest rates will increase in response to people selling their dollars in order to hold Bitcoins. Basically I will say I don't want to buy bonds I would prefer Bitcoins unless the bond rate goes up high enough to make holding bonds or any other debt security as attractive as holding bitcoins.

In theory Bitcoin does expand the global money supply.  It doesn't increase the USD money supply any more than Euros increase the USD money supply but it does increase the overall global money supply.   However it is currently a rounding error.   Global M2 is on the order of $50 trillion.   At ~$5B Bitcoin represents 0.01% of the world's money supply so even if it increased by a factor of 10x in one year it would be essentially nothing.  Maybe someday it would have a meaningful effect but right now it is like pouring a bottle of water into the ocean and asking if it increases the amount of water in the ocean.

Yup. But imagine what happens if a tiny bit of that ocean flows into the BTC bottle, that is why China is not needed for 4 digit prices.  Smiley

Truth is the new hatespeech.
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