Could deflation cause problems for bitcoin? - CoinDesk
Could deflation cause problems for bitcoin? - CoinDesk
Why Global Deflation May Not Be Bad News For Bitcoin ...
Why Global Deflation May Not Be Bad News for Bitcoin
Deflation Part 2: Is Bitcoin Price Deflation Good or Bad?
Why Global Deflation May Not Be Bad News for Bitcoin
If deflation is a bad thing how can Bitcoin succeed?
With deflation there is less spending because people just want to hoard their money instead of spending/investing because their money will be worth more in the future. I see how Bitcoin can be successful as a store of value like gold. But I am not sure when it comes to be actual money or a monetary system. I like Bitcoin and I want it to be successful. I understand the value of network because of security done by the countless miner securing the network. Also the value of a decentralized, borderless, and unconfiscatable currency. That works 24/7 no weekends/ holidays off like our fiat system.
Bitcoin has a stable monetary supply, in terms of purchasing power it's a deflationary currency. Tons of economists say that deflation is bad. These government economists never explain what's causing that deflation. I made this video comparing what's better: a little bit of inflation or deflation?
Why is deflation, or lowering of prices, considered a bad thing if we are talking about commodity money such as Bitcoin?
Human productivity is measured in being able to do (buy) more with less time (money). Why do we need a currency such as Ampleforth which prevents this, when at the end of the day we all want lower prices?
08-31 07:48 - 'Did the FED buy iphones? Furthermore, stocks do well in an inflation range of 2-5%. And you probably meant deflation which would be pretty bad for stocks.' by /u/Spl00ky removed from /r/Bitcoin within 524-534min
Why Global Deflation May Not Be Bad News for Bitcoin
Contrary to expectations, bitcoin could see a positive performance during a possible bout of global deflation if it acts not just as an investment asset, but as a medium of exchange and a perceived safe haven like gold. The top cryptocurrency by market value is widely considered to be a hedge against inflation because its supply is capped at 21 million and its monetary policy is pre-programmed to cut the pace of supply expansion by 50 percent every four years. As such, one may consider any deflationary collapse as a price-bearish development for bitcoin. Talk of deflation began earlier this month after the U.S. reported massive job losses due to the coronavirus outbreak. The prospects of a deflationary collapse have strengthened with this week’s oil price crash. “The oil price rout will send a deflationary wave through the global economy,” tweeted popular macro analyst Holger Zschaepitz on Tuesday. Read more: First Mover: What the Oil Price Collapse Means for Bitcoin’s Halving Valuation Cash typically becomes king during deflation because the drop in the general price levels boosts the monetary unit’s purchasing power, or the ability to purchase goods and services. “Unlike inflation, when people try to get out of the dollar because it’s losing value, during deflation people are more comfortable with the dollar because its value is going up,” said Erick Pinos, ecosystem lead for the Americas at the public blockchain and distributed collaboration platform Ontology. The rush for cash, however, may not have a substantially negative impact on bitcoin’s price because deflation would also boost the purchasing power of the cryptocurrency. “While the price per coin may stagnate during a period of aggressive economic deflation, the inherent buying power of the currency will actually rise, possibly quite significantly,” said Brandon Mintz, CEO of the bitcoin ATM provider Bitcoin Depot. As time goes on and people become more comfortable with digital assets, the average person begins to see Bitcoin as a legitimate viable alternative to gold.** The uptick in the purchasing power will likely draw greater demand for bitcoin, as the cryptocurrency is already used as means of payment. “Hundreds of thousands of businesses, brands and merchants do accept the ‘digital gold’ as payment, and thousands more every day are realizing the benefits of diversifying their revenue stream and accepting bitcoin as payment for their goods and services,” said Derek Muhney, director of sales and marketing at Coinsource, the world’s leader in Bitcoin ATMs. Moreover, the cryptocurrency’s appeal as a medium of exchange is likely to continue strengthening with the growing prevalence of technology in consumers’ everyday lives caused by the coronavirus pandemic. ##Digital gold ## Ever since its inception, bitcoin has been dubbed “digital gold.” Like the yellow metal, the cryptocurrency is durable, fungible, divisible, recognizable and scarce. Both assets share features that fulfill Aristotle’s call for a currency to be practical and functional. Bitcoin has actual utility as the means of payment, which gold lacks, according to Coinsource’s Muhney. “As time goes on and people become more comfortable with digital assets, the average person begins to see Bitcoin as a legitimate viable alternative to gold. Thus, it’s reasonable to assume that during a period of deflation bitcoin would perform well like gold has in the past,” said Erick Pinos, America’s ecosystem lead at the public blockchain and distributed collaboration platform Ontology. Read more: Looking for a Safe Haven Digital Asset? Try Gold Hence, gold’s performance during the previous bouts of deflation could serve as a guide for bitcoin investors. Historical data shows gold performs well during deflation, which includes a sharp rise in financial stress and increased risk of corporate defaults; highly levered companies tend to go bust during deflation because their revenues fall while their debt service payments remain the same. Of course, gold’s shine is particularly bright during periods of inflation as well. As in periods of sizable deflation, inflation brings a set of price distortions that shake-up income statements and economies. A commonly-used measure of stress is the “Ted spread” or the difference between the three-month U.S. interbank rate and the three-month T-Bill rate. Ted SpreadSource: St. Louis Fed Research“Massive spikes in the Ted spread in the 1970s were accompanied by a sharp rise in gold. The Ted spread also rose sharply in the early 1980s; in 1987 in the wake of the stock market crash and during the global financial crisis of 2007-2009 – both also periods of stronger gold prices,” according to Oxford Economics’ research note. Gold’s performance in stress periodsSource: Oxford ResearchThe real or inflation-adjusted price of gold rose an average 33 percent per annum in the 1970s, 18 percent in 1980s and 15.8 percent in 2000. Underscoring all of the scenarios is that a sudden rise in economic stress usually fuels a global dash for cash, forcing investors to sell everything from stocks to gold. However, once economic uncertainty starts settling, people again start looking for safe havens. “During the Great Recession, while gold initially declined alongside other equities, it found its footing and rallied faster than stocks recovered,” Ontology’s Pinos told CoinDesk. The Ted spread spiked as high as 4.6 following the collapse of Lehman Brothers in August 2008. Gold fell from $920 to $680 per troy ounce in the August to October period, as investors treated the yellow metal as a source of liquidity, but still ended that year with 5.5 percent gains. More importantly, it rallied by 24 percent in 2009 and went on to hit a record high above $1,900 in 2011. Read more: First Mover: Bitcoin Jumps as Fed Assets Top $6.5T and Traders Focus on Halving The yellow metal’s recent price gyrations suggest history may be repeating itself. As the Ted spread rose from 0.11 to 1.42 in the four weeks to March 27, gold fell from $1,700 to $1,450 yet is now trading near $1,725 per ounce, having hit a 7-year high of $1,747 ten days ago. Bitcoin, too, was treated as a source of liquidity last month, as evidenced from the near 40 percent drop to levels under $4,000 seen on March 12. Since then, however, the cryptocurrency has risen by nearly 85 percent to $7,500. If gold’s historical data and the recent market activity is a guide, then the path of least resistance for bitcoin appears to be on the higher side. ##Unprecedented stimulus to undermine fiat currencies ## Both the U.S. government and the Federal Reserve have unleashed massive amounts of liquidity into the system over the past few weeks to contain the economic fallout from the coronavirus pandemic. Notably, the Fed is running an open-ended asset purchase program and its balance sheet has already risen to record highs above $6.5 trillion. Meanwhile, central banks from New Zealand to Canada have slashed rates to zero and have recently announced bond purchase programs. What’s more, the amount of fiscal stimulus announced by 22 countries in March is equivalent to 75 percent of the global gross domestic product (GDP), according to JPMorgan. However, most governments and central banks appear to have run out of ammo. Hence, if the coronavirus pandemic continues to spread or leads to corporate defaults, investors may lose trust in traditional finance and look for alternatives like bitcoin and cryptocurrencies in general. Moody’s Analytics recently warned of the heightened risk of corporate defaults in the oil and gas sector across the globe, and weakness in entertainment and leisure giving way to pressure on consumer durables. “The willingness to fight deflation should bode well for bitcoin,” said Richard Rosenblum, head of trading at GSR. Meanwhile, Ashish Singhal, CEO and founder of the cryptocurrency exchange Coinswitch.co, said, “In a deflationary scenario, the chances of negative interest rates are high, and users would want to move their existing assets into more stable assets like bitcoin to prevent loss in their asset value.” Interest rates are already set below zero across Europe and in Japan and are hovering at or near zero in other advanced countries. Further, with central banks willing to do whatever it takes to defeat deflation, the real yield or inflation-adjusted returns on bonds are likely to remain negative or meagerly positive at best. As a result, zero-yielding assets like gold and bitcoin may attract more buyers. Bank of America’s analysts noted earlier this week that the stimulus frenzy amid the coronavirus pandemic would put pressure on the currencies and send gold to $3,000 by October 2021. While bitcoin could perform well during deflation, bitcoin and cryptocurrencies have seldom tracked macro developments on a consistent basis in the past. “Blockchain-based currencies are really their own beasts,” said Bitcoin Depot CEO Brandon Mitz. DisclosureRead MoreThe leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. Source: https://thedailyblockchain.news/2020/05/24/why-global-deflation-may-not-be-bad-news-for-bitcoin/
Krugman, trolls: to support your claim of deflation being bad in the context of bitcoin, please explain how we will see deflationary spirals like the Great Depression or 90s Japan if there is no bitcoin-denominated debt/wages/prices? If you don't, then stop using it as a handwaving argument plz thx.
Beyond using "deflation" as a simple boogeyman, I've never heard someone explain why this would be a systemically catastrophic as it has been in well known cases (US Great Depression, Japan's Lost Decade, etc.). In those well-known cases the main problem, basically, was the deflationary spiral caused by the real value of the debt increasing, thus exacerbating the vicious cycle of lower output leading to lower wages, lower investment, lower spending, lower output, etc. However, how does this apply to Bitcoin?
How much debt is there denominated in bitcoins? Almost none.
How many people have their wages denominated in bitcoin (not just paid in bitcoin, but set in bitcoin)? Almost none, and even if some do, it's probably readjusted to the dollar exchange rate every month or two or three.
How many people set prices for their products in bitcoins? Besides the Bitcoin Trezor pre-order experiment, almost none, unless it's a trivial amount (for example, the price of embedding a hash of a document in the blockchain at www.proofofexistence.com) or temporary (for example, a price for a drink special at happy hour, as was the case in Miami yesterday).
"That describes the current state of the 'Bitcoin economy'", the skeptic/critic might say, "what about the future? One day there might be a lot of bitcoin-denominated debt, what then when those people can't pay it back when the value of the currency deflates?" It's not that simple; the world is dynamic so we can't just imagine that suddenly people have bitcoin-denominated debt-- they actually have to take it on. Will they? As our esteemed sage says in page 410 of his book Economics (Krugman, Wells, 2006), there's a difference between expected and unexpected deflation. He mentions it in the context of a liquidity trap and the inability of monetary policy to stimulate the economy due to the fact that nominal interest rates are zero bound (they can't go below zero). However, I'll use the distinction in the context of bitcoin to argue that we might never see a significant amount of lending denominated in bitcoin because agents expect deflation. Thus in only the most extreme cases, where a borrower knows that the investment they seek to finance is guaranteed to have a healthy ROI in bitcoin, will that borrower take out a loan in bitcoin at a >0% rate. Now, perhaps these skeptics/critics might say they actually want a world with high amounts of debt, not low-debt as I've described. Fine, I'll concede that mass adoption of bitcoin as a currency might reduce the level of debt in society. (Though, I'll be happy to take that to the masses and see which side of the more-debt/less-debt argument most people fall under.) But what I don't think they can casually say is that bitcoin adoption will lead to deflationary spirals. I'm all ears, though, if you have a more drawn out argument. tl;dr Deflation was bad in during the Great Depression and Japan in the 1990's mainly because it was unexpected and, most importantly, debt was denominated in dollars and yen (respectively) and created a deflationary spiral. I reject the handwaving argument that "bitcoin is bad because it's deflationary", if critics/skeptics don't acknowledge that we are unlikely to see much if any bitcoin-denominated debt (nor bitcoin-denominated wages/prices.)
01-16 12:13 - 'Did you even read that article? Not once did it actually provide any evidence as to why deflation is better than inflation (it's not) it just stated that it is then went on about why inflation is bad, but not why deflation i...' by /u/Marmoolak21 removed from /r/Bitcoin within 3-13min
''' Did you even read that article? Not once did it actually provide any evidence as to why deflation is better than inflation (it's not) it just stated that it is then went on about why inflation is bad, but not why deflation is good at all. My favorite part is that the article agrees with exactly what I said happens when deflation occurs (where people hold money instead of using it), and just glosses over it. And yes, inflation is bad, but it is believed to be better than the alternatives when you look at the overall health of the Economy. And since you provided an article for your viewpoint (even though yours was written by Economists which you say are mostly shills for the government) I thought I should provide one for mine. It's written by a magazine catering to businessmen, so you can't dismiss it as being written by economist shills, and I didn't even have to search far and wide for an obscure school to support my argument: [link]1 And if you want to see an example of this you don't need to look any further than crypto currency. If you look all over this subreddit you will see people telling others to hold, or that they have held since a certain price. This is happening because crypto currency is speculated to appreciate in value over time so people are afraid to spend it. If the entire world's economy used crypto then it would have already collapsed by now due to a huge economic slowdown. Crypto is, in effect, experiencing deflation right now. Edit: Added last paragraph ''' Context Link Go1dfish undelete link unreddit undelete link Author: Marmoolak21 1: www.forbes.com/sites/mikepatton/2013/07/01/the-truth-behind-the-feds-monetary-expansion
Contrary to expectations, bitcoin power see a optimistic efficiency throughout a accomplishable bout of worldwide deflation if it acts not simply as an funding plus, all the same as a medium of trade and a perceived protected haven like gold. The prime cryptocurrency by market worth is extensively thought-about to be a hedge towards inflation … Why Global Deflation May Not Be Bad News for Bitcoin. Read full article. ... may not have a substantially negative impact on bitcoin’s price because deflation would also boost the purchasing ... While bitcoin could perform well during deflation, bitcoin and cryptocurrencies have seldom tracked macro developments on a consistent basis in the past. “Blockchain-based currencies are really their own beasts,” said Bitcoin Depot CEO Brandon Mitz. Related Stories. Market Wrap: Bitcoin Steady at $7.5K as Short Sellers Back Off Why Global Deflation May Not Be Bad News for Bitcoin Contrary to expectations, bitcoin could see a positive performance during a possible bout of global deflation if it acts not just as an investment asset, but as a medium of exchange and a perceived safe haven like gold. We concluded that, yes, Bitcoin has indeed been deflationary throughout its five-year lifespan. Now we can raise the question: is the deflationary nature of Bitcoin value good or bad for the Bitcoin economy? This question returns to the debate of whether deflation is desirable over inflation or vice-versa.
With societal memories of stagflation and hyperinflation, inflation is typically seen as a bad thing. Because of this, it's inverse, deflation, is often said to be beneficial. Here, I lay out the ... bitcoin 1P6yTbb7CJJVpsDUKpi2VH6CMSsc6uN8jM litecoin LZHVqUWe8JE2PrBS7AuFU3eYgKGYPKnhpe. In this report I talk about the possibility that the SEC could approve a bitcoin ETF and I argue that it is a really bad idea for the crypto currency and why it could lead to the emergence of ... Bitcoin gets its value from people who believe that the world will be globalized, decentralized and based on the internet in the future. But it is unlikely that this will be enough to replace gold ... In this deflation video YOU'LL discover why experts say deflation is the inevitable path to the next financial crisis. All the insider information you need t...