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Bitcoin is used as a speculative instrument because by definition it is deflationary. Which means it is more expensive to buy something with it today, then tomo

by raiyu 6y ago

Bitcoin is used as a speculative instrument because by definition it is deflationary. Which means it is more expensive to buy something with it today, then tomorrow. Just look at Chamath's tweet about how he bought a property for Bitcoin in 2014 for $1.4MM but today that same amount of bitcoin would be $100MM+ https://markets.businessinsider.com/currencies/news/chamath-palihapitiya-bitcoin-land-investmet-loss-porn-btc-tesla-2021-2-1030067864 https://markets.businessinsider.com/currencies/news/chamath-... This creates an environment there is never a reason to use the currency for a purchase, strictly because it's supply is completely limited and never increasing over time. Since the world economy continues to grow as GDP, output, and the population grows, it stands to reason that if Bitcoin in any way parallels our real world economic scenario, it would continue to rise in price per unit, because the overall GDP continues to increase. As a result, it in fact never stabilizes, unless overall GDP stops growing. Since it never stops growing, it never makes sense to use it for a purchase, and so you have a flywheel effect of ever increasing upward price pressure.

BenoitEssiambre 6y ago
And this can go on until GDP is forced to shrink because people and businesses are all hoarding crypto tokens instead of participating in the real economy. This happened almost a hundred years ago when the world got too excited about gold. It' scary to think it could happen again with cryptocoins.
- jkepler 6y ago
  What historical period are you referring to? If you look at the first 200 years of US history, for example, there was plenty of real world growth on spite of slow price deflation. Gold and silver jointly backed the banking system until the Federal reserve started the current USD system in 1913. In much of the rest of the world, the 40 years prior to WW1 were largely characterized by economic growth, while on an international (albeit decentralized on a national level) gold standard. What event are you thinking if?
  - BenoitEssiambre 6y ago
    The pre ww1 world was probably too different from today to draw lessons applicable today and in any case there were recessions every few years back then: https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#Free_Banking_Era_to_the_Great_Depression https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit... Gold tied assets hoarding caused the great depression.
    - sgeisler 6y ago
      Probably an unpopular opinion on a VC site, but to some degree recessions are good and needed to weed out underperforming and utterly useless companies to free up resources. The lack of such and bail-outs/rescuing attempts by governments to "save jobs" [1] have delayed necessary restructuring for way too long. Also, if recessions are the norm rather than the exception I'd expect people and companies to be more prepared (e.g. by being less leveraged, keeping more savings), so that the actual event isn't as bad on a personal level and it's just about capital reallocation. [1] an especially bullshitty argument, since ideally we'd want to get rid of jobs that don't add (enough) value to make the economy more efficient. I think the wasted human resources and ingenuity are the greatest tragedy.
      - BenoitEssiambre 6y ago
        Except low aggregate demand recessions do no such thing. It's often the opposite. Recessions keep alive inefficient manual labor intensive, low tech service industries because they make available cheap unemployed/underemployed labor. That's on top of the inefficiency of people doing nothing and living off of unemployment benefit/welfare. Under performing companies get much more efficiently "creatively destructed" in an economy that is running hot where only the more efficient, well tooled businesses can afford employees at tight labor market wages. On top of this, fewer human resources are left wastefully idle.
      - imtringued 6y ago
        High interest rates weed out underperforming companies. That's exactly what inflation is for. The reality is that CPI inflation is still dead and the fed is irresponsibly following a 0% interest rate strategy that will never work out.
wuliwong 6y ago
It is only by definition deflationary if you are specifically talking about price deflation. I know that has grown to be the popular use of the term but inflation/deflation is much better defined by the increase/decrease in the supply itself. By that definition, BTC is still inflationary for the near future until it hits the 21 million BTC limit. It's just far less inflationary than USD.

by raiyu 6y ago

BenoitEssiambre 6y ago

And this can go on until GDP is forced to shrink because people and businesses are all hoarding crypto tokens instead of participating in the real economy. This happened almost a hundred years ago when the world got too excited about gold. It' scary to think it could happen again with cryptocoins.

jkepler 6y ago
What historical period are you referring to? If you look at the first 200 years of US history, for example, there was plenty of real world growth on spite of slow price deflation. Gold and silver jointly backed the banking system until the Federal reserve started the current USD system in 1913. In much of the rest of the world, the 40 years prior to WW1 were largely characterized by economic growth, while on an international (albeit decentralized on a national level) gold standard. What event are you thinking if?
- BenoitEssiambre 6y ago
  The pre ww1 world was probably too different from today to draw lessons applicable today and in any case there were recessions every few years back then: https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#Free_Banking_Era_to_the_Great_Depression https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit... Gold tied assets hoarding caused the great depression.
  - sgeisler 6y ago
    Probably an unpopular opinion on a VC site, but to some degree recessions are good and needed to weed out underperforming and utterly useless companies to free up resources. The lack of such and bail-outs/rescuing attempts by governments to "save jobs" [1] have delayed necessary restructuring for way too long. Also, if recessions are the norm rather than the exception I'd expect people and companies to be more prepared (e.g. by being less leveraged, keeping more savings), so that the actual event isn't as bad on a personal level and it's just about capital reallocation. [1] an especially bullshitty argument, since ideally we'd want to get rid of jobs that don't add (enough) value to make the economy more efficient. I think the wasted human resources and ingenuity are the greatest tragedy.
    - BenoitEssiambre 6y ago
      Except low aggregate demand recessions do no such thing. It's often the opposite. Recessions keep alive inefficient manual labor intensive, low tech service industries because they make available cheap unemployed/underemployed labor. That's on top of the inefficiency of people doing nothing and living off of unemployment benefit/welfare. Under performing companies get much more efficiently "creatively destructed" in an economy that is running hot where only the more efficient, well tooled businesses can afford employees at tight labor market wages. On top of this, fewer human resources are left wastefully idle.
    - imtringued 6y ago
      High interest rates weed out underperforming companies. That's exactly what inflation is for. The reality is that CPI inflation is still dead and the fed is irresponsibly following a 0% interest rate strategy that will never work out.

wuliwong 6y ago

It is only by definition deflationary if you are specifically talking about price deflation. I know that has grown to be the popular use of the term but inflation/deflation is much better defined by the increase/decrease in the supply itself. By that definition, BTC is still inflationary for the near future until it hits the 21 million BTC limit. It's just far less inflationary than USD.