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Good point. The problem is that some people think it is a currency instead of an investment. Other people think it is an investment instead of a currency. It ca

Good point. The problem is that some people think it is a currency instead of an investment. Other people think it is an investment instead of a currency. It can't be both. Currencies have to be less valuable over time, otherwise no one would ever spend the currency. Investments have cost more overtime otherwise no would would invest. But both groups are buying and driving up the price. Also, there is a 3rd group that thinks it is a hedge. With hedges you don't really care if the price is going up or down. You want it to give you options. For example, you may buy a stockpile of food or toilet paper, not because you are hoping to turn a profit, but to give you an option to avoid going to the grocery store during another panic buying situation.

gruez 6y ago
>Currencies have to be less valuable over time, otherwise no one would ever spend the currency. Isn't this only true with the removal of the gold standard?
- freeone3000 6y ago
  It's part of the reason the gold standard was removed. Currency deflation made loans expensive, for two reasons: the time value of money was higher in 1933 than it was any point since; and since loans are in nominal dollars, deflation causes loans to be more expensive in real dollars, even disregarding interest. 1932 had -10.3% inflation -- this added an additional 10% interest to every loan, on top of the 17% prime rate (because why lend money?). A 27% effective loan rate is ruinous for business, especially agriculture. The gold standard was removed in 1933, interest rates dropped to 12%, inflation increased wildly to 0.3%, and people could borrow money again.
_dps 6y ago
> Currencies have to be less valuable over time, otherwise no one would ever spend the currency. I don't have an opinion on BTC (or gold for that matter) but this widely-distributed meme is simply untrue. 1) If I have a bar of gold, and it will buy me 1% more bread loaves in a year's time, but I can invest it in something that will trade for 2% more bread loaves next year, then I will spend it because despite appreciation it is not my best source of appreciation. 2) I have living/operating expenses that I consider to supersede my need for financial return. If I don't pay for shelter and food, I won't be around in a year to enjoy the 1% more bread loaves I would get from appreciation. 3) Empirically/historically, over long time frames, gold appreciates in real terms (slowly). And yet people spent gold coins and gold-backed notes regularly. Now, if a currency is appreciating much faster than anything else in the economy I agree you can have a deflationary spiral and a liquidity problem. But this is because the economy is collapsing — ordinary sources of growth have disappeared or reversed. This is a very special situation, and is not a general argument that currencies must depreciate.
- bob33212 6y ago
  Sure, people do have to buy food to live, but that isn't the point. Just replace "less valuable over time" with "not much more valuable over time" in my comment. The point isn't that gold went up or down by 1% between 1750-1850. The point is that people are buying bitcoin for opposite reasons. Is it a currency? If so like you said it shouldn't be going up quickly. Is it an investment? If so, where is the cashflow?
_heimdall 6y ago
> Currencies have to be less valuable over time, otherwise no one would ever spend the currency The purchasing power of a currency doesn't have to change, the government manipulators could target 0% inflations just as easily as they target 2-3%. Most modern economies are driven by debt, thats what "creates" new wealth out of thin air. The main reason we target a low, steady level of inflation is to best incentivize lending and investing in debt. If currency value is allowed to swing wildly you can't put a predictable price on future money. If currency is allowed to lose value (deflation) you are incentivized to hold onto it rather than buy up debt. Noone buying debt means noone creating money out of nothing, meaning no GDP growth unless velocity increases.
Viliam1234 6y ago
> Currencies have to be less valuable over time, otherwise no one would ever spend the currency. Ah, that would explain why we abandoned the gold standard. No one ever spent those gold coins, and no trade existed before 1933.
bartvk 6y ago
> Currencies have to be less valuable over time, otherwise no one would ever spend the currency I'm not deeply steeped in macro-economics. Is this a theory, or an historical observation? Where can I find more about this?
- bob33212 6y ago
  Historically, there have been a wide range of items used in barter and markets. https://en.wikipedia.org/wiki/Currency#Early_currency https://en.wikipedia.org/wiki/Currency#Early_currency. Some of those like livestock depreciated in value very quickly since they literally had a lifespan. Others, like rare coins have gone up in value. In the context of Bitcoin we are talking about the modern world. The major forces in the modern world are Globalization and Technology. Assuming you don't want China to take over the world you need growth. Growth happens when investment and debts are created. Ray Dalio explains it well. https://www.youtube.com/watch?v=PHe0bXAIuk0&ab_channel=PrinciplesbyRayDalio https://www.youtube.com/watch?v=PHe0bXAIuk0&ab_channel=Princ... This is why successful countries like the USA target 2-3% inflation. It is theoretically possible to create a country where inflation was -1%, but technological growth, which is very hard to stop would create a deflationary spiral that would bring the economy to a halt.

gruez 6y ago

>Currencies have to be less valuable over time, otherwise no one would ever spend the currency. Isn't this only true with the removal of the gold standard?

freeone3000 6y ago
It's part of the reason the gold standard was removed. Currency deflation made loans expensive, for two reasons: the time value of money was higher in 1933 than it was any point since; and since loans are in nominal dollars, deflation causes loans to be more expensive in real dollars, even disregarding interest. 1932 had -10.3% inflation -- this added an additional 10% interest to every loan, on top of the 17% prime rate (because why lend money?). A 27% effective loan rate is ruinous for business, especially agriculture. The gold standard was removed in 1933, interest rates dropped to 12%, inflation increased wildly to 0.3%, and people could borrow money again.

_dps 6y ago

> Currencies have to be less valuable over time, otherwise no one would ever spend the currency. I don't have an opinion on BTC (or gold for that matter) but this widely-distributed meme is simply untrue. 1) If I have a bar of gold, and it will buy me 1% more bread loaves in a year's time, but I can invest it in something that will trade for 2% more bread loaves next year, then I will spend it because despite appreciation it is not my best source of appreciation. 2) I have living/operating expenses that I consider to supersede my need for financial return. If I don't pay for shelter and food, I won't be around in a year to enjoy the 1% more bread loaves I would get from appreciation. 3) Empirically/historically, over long time frames, gold appreciates in real terms (slowly). And yet people spent gold coins and gold-backed notes regularly. Now, if a currency is appreciating much faster than anything else in the economy I agree you can have a deflationary spiral and a liquidity problem. But this is because the economy is collapsing — ordinary sources of growth have disappeared or reversed. This is a very special situation, and is not a general argument that currencies must depreciate.

bob33212 6y ago
Sure, people do have to buy food to live, but that isn't the point. Just replace "less valuable over time" with "not much more valuable over time" in my comment. The point isn't that gold went up or down by 1% between 1750-1850. The point is that people are buying bitcoin for opposite reasons. Is it a currency? If so like you said it shouldn't be going up quickly. Is it an investment? If so, where is the cashflow?

_heimdall 6y ago

> Currencies have to be less valuable over time, otherwise no one would ever spend the currency The purchasing power of a currency doesn't have to change, the government manipulators could target 0% inflations just as easily as they target 2-3%. Most modern economies are driven by debt, thats what "creates" new wealth out of thin air. The main reason we target a low, steady level of inflation is to best incentivize lending and investing in debt. If currency value is allowed to swing wildly you can't put a predictable price on future money. If currency is allowed to lose value (deflation) you are incentivized to hold onto it rather than buy up debt. Noone buying debt means noone creating money out of nothing, meaning no GDP growth unless velocity increases.

Viliam1234 6y ago

> Currencies have to be less valuable over time, otherwise no one would ever spend the currency. Ah, that would explain why we abandoned the gold standard. No one ever spent those gold coins, and no trade existed before 1933.

bartvk 6y ago

> Currencies have to be less valuable over time, otherwise no one would ever spend the currency I'm not deeply steeped in macro-economics. Is this a theory, or an historical observation? Where can I find more about this?

bob33212 6y ago
Historically, there have been a wide range of items used in barter and markets. https://en.wikipedia.org/wiki/Currency#Early_currency https://en.wikipedia.org/wiki/Currency#Early_currency. Some of those like livestock depreciated in value very quickly since they literally had a lifespan. Others, like rare coins have gone up in value. In the context of Bitcoin we are talking about the modern world. The major forces in the modern world are Globalization and Technology. Assuming you don't want China to take over the world you need growth. Growth happens when investment and debts are created. Ray Dalio explains it well. https://www.youtube.com/watch?v=PHe0bXAIuk0&ab_channel=PrinciplesbyRayDalio https://www.youtube.com/watch?v=PHe0bXAIuk0&ab_channel=Princ... This is why successful countries like the USA target 2-3% inflation. It is theoretically possible to create a country where inflation was -1%, but technological growth, which is very hard to stop would create a deflationary spiral that would bring the economy to a halt.