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Why does bitcoin appreciate in value vs. fiat currency?

dnautics 6y ago
it doesn't have to, but governments can't steal from the poor and give to the rich as effectively if they don't devalue the currency. It's such a mind trick that it gets nearly universal support regardless of if the policymakers is on the left or the right, and everyone who is opposed to it is labeled a kook. If it's gradual enough the increasing divide between the rich and poor will be pointed at other causes like 'capitalism'. Naturally, governments would like to continue such a universally beloved source of revenue, so the state of affairs of bitcoin vs fiat is unlikely to change, and of course bitcoin and similar forms are like to suffer restrictions and limitations imposed on it by governments. It's also worth noting that the meteoric rises of bitcoin since its inception has very little to do with this fundamental form of cryptocurrency relative appreciation, outside of attracting the kooks who want to believe in alternatives.
Geee 6y ago
Because it is better money, and it's more desirable to own. There isn't a simple answer on why it's better money. Here's a long answer to the question: https://medium.com/@danhedl/planting-bitcoin-sound-money-72e80e40ff62 https://medium.com/@danhedl/planting-bitcoin-sound-money-72e...
jkhdigital 6y ago
Because it has a rapidly declining stock to flow ratio, which will soon be even lower than gold. It will be the hardest form of money ever devised.
- tromp 6y ago
  This rapidly declining inflation rate is undesirable as it necessarily concentrates wealth in early adopters. Other coins are even harder in just creating ALL supply in one instant. That makes them both harder and worse. A constant emission would minimize concentration of wealth yet still have inflation rate going to zero.
arthurcolle 6y ago
Because central banks are hyperinflating fiat currencies whereas bitcoin has a fixed supply and a lower velocity of money.
- acdha 6y ago
  Hyperinflation is an economics term with a defined meaning which does not match how you're using it: https://en.wikipedia.org/wiki/Hyperinflation https://en.wikipedia.org/wiki/Hyperinflation You're also making the mistake of assuming equal demand: Bitcoin is inherently deflationary but it's also completely voluntary — few people use it and nobody is required to use it. Bitcoin's high variability over the years shows that speculator demand can last for years but there's no lock-in and many competing options. There are a few people who've put large amounts of money into it but statistically almost nobody uses it so there's little defense against a competitor because most people have no sunk cost and most of the percentage who do have only a small holding at risk.
  - arthurcolle 6y ago
    https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... USD is being actively and significantly devalued (take a look at the US Dollar Index, as an example), as are most other major fiat currencies. I was using hyperinflation a bit hyperbolically, but the point still stands. One potential interpretation for the the appreciation of bitcoin vs. USD (which, I should add, is the longest its ever been over 10K/btc spot) over the last few weeks is a reaction to the ongoing attempts to jumpstart the various economies of the world that have been put on life support since the start of the pandemic. Obviously bitcoin and USD don't have equal demand curves, but compare the supply curves: stable vs. arbitrary. If you're comparing two assets, they don't necessarily need to have equivalent instantaneous demand functions - that seems a bit specious.
    - dnautics 6y ago
      https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi... > even in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. Sir, do you want workers to make a fair wage? We can't have that. You should be supporting inflation.

it doesn't have to, but governments can't steal from the poor and give to the rich as effectively if they don't devalue the currency. It's such a mind trick that it gets nearly universal support regardless of if the policymakers is on the left or the right, and everyone who is opposed to it is labeled a kook. If it's gradual enough the increasing divide between the rich and poor will be pointed at other causes like 'capitalism'. Naturally, governments would like to continue such a universally beloved source of revenue, so the state of affairs of bitcoin vs fiat is unlikely to change, and of course bitcoin and similar forms are like to suffer restrictions and limitations imposed on it by governments. It's also worth noting that the meteoric rises of bitcoin since its inception has very little to do with this fundamental form of cryptocurrency relative appreciation, outside of attracting the kooks who want to believe in alternatives.

Geee 6y ago

Because it is better money, and it's more desirable to own. There isn't a simple answer on why it's better money. Here's a long answer to the question: https://medium.com/@danhedl/planting-bitcoin-sound-money-72e80e40ff62 https://medium.com/@danhedl/planting-bitcoin-sound-money-72e...

jkhdigital 6y ago

Because it has a rapidly declining stock to flow ratio, which will soon be even lower than gold. It will be the hardest form of money ever devised.

tromp 6y ago
This rapidly declining inflation rate is undesirable as it necessarily concentrates wealth in early adopters. Other coins are even harder in just creating ALL supply in one instant. That makes them both harder and worse. A constant emission would minimize concentration of wealth yet still have inflation rate going to zero.

arthurcolle 6y ago

Because central banks are hyperinflating fiat currencies whereas bitcoin has a fixed supply and a lower velocity of money.

acdha 6y ago
Hyperinflation is an economics term with a defined meaning which does not match how you're using it: https://en.wikipedia.org/wiki/Hyperinflation https://en.wikipedia.org/wiki/Hyperinflation You're also making the mistake of assuming equal demand: Bitcoin is inherently deflationary but it's also completely voluntary — few people use it and nobody is required to use it. Bitcoin's high variability over the years shows that speculator demand can last for years but there's no lock-in and many competing options. There are a few people who've put large amounts of money into it but statistically almost nobody uses it so there's little defense against a competitor because most people have no sunk cost and most of the percentage who do have only a small holding at risk.
- arthurcolle 6y ago
  https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... USD is being actively and significantly devalued (take a look at the US Dollar Index, as an example), as are most other major fiat currencies. I was using hyperinflation a bit hyperbolically, but the point still stands. One potential interpretation for the the appreciation of bitcoin vs. USD (which, I should add, is the longest its ever been over 10K/btc spot) over the last few weeks is a reaction to the ongoing attempts to jumpstart the various economies of the world that have been put on life support since the start of the pandemic. Obviously bitcoin and USD don't have equal demand curves, but compare the supply curves: stable vs. arbitrary. If you're comparing two assets, they don't necessarily need to have equivalent instantaneous demand functions - that seems a bit specious.
  - dnautics 6y ago
    https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi... > even in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. Sir, do you want workers to make a fair wage? We can't have that. You should be supporting inflation.