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Author Topic: Beware of the (inflationary/deflationary) Death Spiral  (Read 1635 times)
Stefan Thomas
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May 19, 2011, 11:47:37 AM
 #1

I've noticed today that two of the most common criticisms of Bitcoin make for a rather nice juxtaposition when you put them next to each other:

Criticism 1: Bitcoin is not backed by anything. Right now the value is going up, but eventually people will realize that they have no value. Then, people will start selling them. Once the price starts dropping, more people will sell, a panic will set in causing an INFLATIONARY DEATH SPIRAL. (Example)

Criticism 2: Bitcoin's supply eventually stops growing, this will cause hoarding. The more people hoard, the more the price will go up, making hoarding even more attractive. The result is a DEFLATIONARY DEATH SPIRAL. (Example)

I would argue that inflationary forces would stop a deflationary death spiral and deflationary forces would stop an inflationary one.

If Bitcoin value goes through the roof, wouldn't I want to *sell* some coins in order to realize my profits? If Bitcoin value goes through the floor, wouldn't I want to *buy* some coins cheaply in case the price recovers?

It's supply and demand - sure it can be volatile! There can certainly be a correction either way, even a dramatic one. And you're free to argue that this is reason enough to prefer money that has a central bank regulating supply.

But there is a difference between volatility and predicting Bitcoin's inevitable doom. Neither deflation nor inflation would *end* Bitcoin.

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Blitz­
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May 19, 2011, 11:58:44 AM
 #2

Bitcoins will only increase in value, making people not spend them, decreasing demand and value for them.

Increase in value = decrease in value = ultimate deflationary spiral

Keynesian logic. Huh

"Bitcoin had been transformed from an anarachistic challenge to the financial status quo, to the crypto spawn of Satan, fuelled by cut-throat greed and delusions of avarice." - MatTheCat
"these people don't seem to want to stop till Bitcoin is completely destroyed and left like an old cum rag in the corner of the room." - ShroomsKit
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May 19, 2011, 12:11:25 PM
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I don't think Keynesians argue that the deflationary spiral would be bad for bitcoin, but rather for society. You know, without their wisdom commanding us, we are nothing but ignorant people who would voluntary choose self-destruction. So, the government must intervene to kill such threat.

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May 19, 2011, 12:51:38 PM
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Bitcoins will only increase in value, making people not spend them, decreasing demand and value for them.

Increase in value = decrease in value = ultimate deflationary spiral

Keynesian logic. Huh

i agree with this .. this is how i foresee the Bitcoins death spiral ..   Grin
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