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"what's the difference between spending Bitcoin that would otherwise appreciate 5% value per year, vs. spending dollars, thereby foregoing the opportunity to in
by sloppycee 9y ago
"what's the difference between spending Bitcoin that would otherwise appreciate 5% value per year, vs. spending dollars, thereby foregoing the opportunity to invest in a 5%/year mutual fund?"
Risk. The decreasing yield of mining ensures that the future value of bitcoin will appreciate (assuming demand stays flat). There is no risk that supply might suddenly increase.
- lukifer 9y agoUnpack that for me? Assume we're already past the point where no new coins are being mined, and Bitcoin is appreciating value at a steady rate. (Volatility is a separate concern from deflation.) In that scenario, how is spending Bitcoin any different, micro-economically, than foregoing the opportunity to invest in a similarly-appreciating mutual fund? What's absent from my model?
- sloppycee 9y agoYour model is not considering risk; the time value of bitcoin is risk-free positive, whereas any other instrument (in fiat) is either low risk break even, after inflation, or risk positive. Assuming people are rational actors, they would spend as little as possible and hoard the rest. So then we need to ask: "how is holding bitcoin different than investing in a similar mutual fund". Holding bitcoin decreases the money supply driving up value artificially, whereas investing in a mutual fund increases the money supply available for investment and drives economic growth.