Just look at what electronics manufacturers do.  They have to deal with this problem all the time.  The idea that you just buy a fixed cost and that's it is highly unrealistic as well.  A lot of your costs would move with the value (electricity and labor get cheaper, etc...).  If the company does not spend all of its money initially and has reserves, they do just fine.

But if a company is making less revenue, then it's value probably drops.  Unless it was already anticipated and priced in.

And what is the problem with that?

You buy shares at 1 BTC but eventually they'll trade at 0.1, no matter how profitable and efficient the company is. As I said, you could possibly still end up making money from dividends but it would only be slightly more attractive than just holding the bitcoins in your wallet. Basically this will become harder and harder until it becomes impossible when no new BTC is mined.


I agree, not sure what this has to do with what I'm talking about though.

He has a point.

He's not talking about the buying and selling with the end consumer.  He's talking about encouraging investment in other companies.

Generally, value of a company can be determined by a price/earnings ratio.  If a company makes 10 BTC in a year, and it is valued at 100BTC, the P/E ratio is 10.  If the same company can only make 1 BTC the next year, because of deflation, then the value will likely drop from 100BTC to 10BTC.

That means, that every investor who invested in the company would lose money compared to just holding on to their bitcoins in the first place.

This is an inherent flaw with a deflationary currency, and one that there is no easy answer around, aside from not investing in companies in the first place.  Unless the value of the company can outpace the value of the bitcoin, there is no reason to invest in a company.  Less investment = less innovation = less economic activity.

Why are you insisting that no company will ever be more profitable than the average of the growth of the bitcoin economy?

It'll be hard to tell which ones, but you don't have to. If you don't have an edge at resource allocation just leave it to other people.

I think i know what he's getting at.

An example:

Stock A is an extremely stable company that makes no losses, and also makes no gains ( i know no one would invest in it but it provides an example). It could be something like bottled water, which has a constant value at all times. Anyway we agree this value *never* changes, its completely constant.

BTCs however rise in value, so if you buy Stock A then its initial value in BTCs is say, 100. But as time progresses its BTC cost goes down, not because the company loses, we agree its perfectly constant, but BTC value goes up. So with enough time that company will be worth 50 BTCs..... but its *value* is still the same. It's the BTCs that have changed. So why bother investing in a company when you can just keep the BTCs? The company is a great inflation hedge, but a terrible deflation hedge.

Now lets take Stock B, Company B is a mildly profitable. But its profits do not outstrip the deflation of BTCS. So if you own 100 BTCs of Stock B, then after the same time as above, instead of being worth 50BTCs its worth 75BTCs. Its still profitable, the value *has* gone up because it is higher than constant value company A, but its still only 75BTCs. Once again... why bother investing in it when you could have just kept 100BTCs?

The only way for this to work is for Stock C, Company C is INSANELY profitable. They exclusively produce an antiaging serum and charge insane prices for it. Their stock actually goes up because profits outstrip deflation, 100 BTCs worth becomes 150 BTCs after the allotted time.

So, to answer the original poster... BTC based stocks have to outstrip the deflation rate in order for those stocks to be worthwhile. Store of value stocks, like Stock A, or mildly profitable stocks, like Stock B, are not worthwhile investments in a deflationary currency scenario. Both stocks however are worthwhile in an inflationary currency scenario.

If however BTCs become very stable, then the deflation rate might be low enough that its relatively easy to outrun deflation. I'm not sure if this will happen with bitcoin in particular though.

EXCEPT, we'll be losing BTC as people lose wallets, etc.  And that'll probably happen a lot faster than people anticipate, despite best laid plans.  That deflation won't be due to growth of the economy, so it must be taken in to consideration when making investment calculations.

I do see your point here though.  Difference being, holding on to bitcoins is kind of an "automatic" holding of the Dow Jones. 

Yes you could just keep a hold of your bitcoin, and hope that you can live off your hoard for the rest of your life. Certainly, with the level of appreciation we're seeing at the moment, a good stash of 10kBTC would in perhaps 2 years time make your life very comfortable.

But this exponential growth of the purchasing power of BTC will not last forever. At some point you will need to earn btc to replace your spent hoard. This can be done by purchasing shares of bitcoin denominated companies that pay dividends. No more will people buy shares in the hope they will just rise in value (as a hedge against inflation) but they will buy for the income stream they can earn from those shares.

When your money is always dropping in value you have to invest it - use it or lose it. That kind of investment would go away in non inflationary system. But that investment was always poor investment: when people invest because they must, they won't invest in the best options. It won't be the ponderous long term investment which drives a healthy economy with small boom and bust cycles; instead it will be the frenzied day trading of Wall Street.

I would say that the amazing amount of poor investments being made today, such as that made into clearly failing mortgages, is due to printing press money and government meddling. I for one look forward to seeing what a truly free market could do instead. Imagine our prosperity when our best and brightest are putting their money into ideas which will actually work and lead to profit and truly new innovation, instead of running desperately in the financial instruments hamster wheel.

The end result is that investments will be much more efficient, as people no longer HAVE to invest to keep the value of their savings locked in, so the only motive will be for people to invest will be good profit, not fear of losing their savings to inflation.