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Bitcoin will stabilize in time, when it's big enough to absorb short time supply and demand shocks. It will eventually follow the value of all economic activity

by Geee 5y ago

Bitcoin will stabilize in time, when it's big enough to absorb short time supply and demand shocks. It will eventually follow the value of all economic activity through its network. The more economic activity, the less volatility in aggregate. There's a huge cost in "stabilizing" a fiat currency, in terms of debt and inflation.

acdha 5y ago
Bitcoin can’t scale to handle anywhere close to that much volume, and the deflationary model makes stability harder to maintain since it discourages routine usage.
- myrryr 5y ago
  They are using lightning, which is designed to do so. It if was just bitcoin then yes, they would have serious issues, but it isn't.
  - acdha 5y ago
    Maybe Lightning will scale that well but it hasn’t been demonstrated yet. More importantly, that’ll push a lot of the properties people believe to be true to the banks in all but name most people would actually use.
BenoitEssiambre 5y ago
A deflationary coin cannot stabilize without destabilizing the economy that trades in it. https://benoitessiambre.com/specter.html https://benoitessiambre.com/specter.html
- Geee 5y ago
  That argument isn't true. Deflationary currency can destabilize governments, not the economy. Econonomies fail because they're run by incompetent governments, who spend more than they can afford. Bitcoin is not guaranteed to be deflationary. It's deflationary when the economy is growing. It's inflationary when the economy is shrinking. Deflation will slow down economy, and inflation will accelerate economy. It's a stable self-correcting system, which would correct itself to match the average economic growth globally.
  - acdha 5y ago
    Bitcoin is guaranteed to be deflationary as long as there’s a finite limit – if nothing else, lost keys would reduce the total over time. More importantly, the people hawking it _really_ want it to be deflationary because that effectively makes them landed gentry getting richer without any effort on their part. After a decade of that being integral to the sales pitch I would be extremely surprised to see any major holder support breaking the deflationary model.
    - Geee 5y ago
      There isn't monetary deflation in bitcoin (expect for lost coins). As a global reserve currency, bitcoin would act as an "index fund of everything". Economy is expected to grow, but it's not guaranteed. Which means that there's always a non-zero risk associated to it. There's more risk on short time scales, and less risk on long time scales.
      - Taniwha 5y ago
        There will be if it's successful - 90% of the bitcoins ever mined have already been mined, for bitcoin to be useful at a long term world wide level it needs to store enough value even as the size of the world economy grows - if it can't them it will become a limit on economic growth much as gold became in the last century. So because the number of bitcoin is fixed to remain relevant bitcoin will need to continually deflate (ie increase in value) so that there's enough to represent the size of the economy
    - lottin 5y ago
      No currency is guaranteed to be deflationary. You may guarantee that the currency supply will behave in a certain way (although even that is debatable), buy you cannot guarantee that the price level in terms of such a currency will continuously fall.
      - acdha 5y ago
        The fixed currency supply guarantees it: unless the economy is shrinking at the same rate, each BTC becomes more valuable over time and that’d cause purchase prices for goods to trend lower. This has been a key part of the sales pitch for a decade: buy now and it’ll be worth more later, guaranteed, but that’s not good for an economy since it heavily incentivizes holding onto anything you aren’t forced to spend. Since Bitcoin has no innate demand, that’s an especially dangerous cycle since almost everyone has alternatives.
- narrator 5y ago
  Nobel Prize winner F.A Hayek, who also famously predicted the denationalization of money in the 1970s[1], provided the excellent counterargument to this in the debate with the proto-Keynesians back in the 30s concerning stable supply money vs. inflationary money: https://mises.org/library/hayek-paradox-saving https://mises.org/library/hayek-paradox-saving Hayek was later interviewed in the 70s and said he was mystified when Keynes was promoted to godhood upon his death. He claimed the debate had not yet finished. [1] https://en.wikipedia.org/wiki/The_Denationalization_of_Money https://en.wikipedia.org/wiki/The_Denationalization_of_Money
  - fladrif 5y ago
    The linked article doesn't address the effects of deflationary currency at all, it describes the notion of including capital in the description of economies.
    - narrator 5y ago
      It criticizes the statement by Keynes that savings leads to depression due to underconsumption and thus there must be regularly monetary stimulus, meaning expansion of government borrowing and hence, the money supply. Hayek was a proponent of the gold standard and fixed money supply at this time and the Keynesians promoted fiat money and a flexible money supply and monetary policy.
      - fladrif 5y ago
        I'm not familiar with Hayek, so you may need to fill in gaps where I may have them, but the argument in the article (as I understand) specifically establishes the context where savings are presumed invested into capital. How I understand deflationary currency is that investments are not incentivized, and would therefore not lead to the situation as described in the article.
        narrator 5y ago
        Investment is naturally incentivized because the only reason capital is created is to lower the cost of production. If you build a factory, or invest in a machine to make things and it costs the same to manufacture those things in the factory or with the machine as it would to manufacture them by hand, why did you even build the factory in the first place? The inputs used to construct the factory would be better used for other things and thus the business loss from building a useless factory or unnecessary piece of equipment is the economically efficient because it is a misuse of labor and material inputs. We are not talking about deflationary money either. We are talking about stable money supply, which is what Bitcoin is.
- imtringued 5y ago
  Nice article. Pretty much matches what I have figured out myself but you gave it a new perspective that I hadn't thought of.
deleted 5y ago
[deleted]

by Geee 5y ago

acdha 5y ago

Bitcoin can’t scale to handle anywhere close to that much volume, and the deflationary model makes stability harder to maintain since it discourages routine usage.

myrryr 5y ago
They are using lightning, which is designed to do so. It if was just bitcoin then yes, they would have serious issues, but it isn't.
- acdha 5y ago
  Maybe Lightning will scale that well but it hasn’t been demonstrated yet. More importantly, that’ll push a lot of the properties people believe to be true to the banks in all but name most people would actually use.

BenoitEssiambre 5y ago

A deflationary coin cannot stabilize without destabilizing the economy that trades in it. https://benoitessiambre.com/specter.html https://benoitessiambre.com/specter.html

Geee 5y ago
That argument isn't true. Deflationary currency can destabilize governments, not the economy. Econonomies fail because they're run by incompetent governments, who spend more than they can afford. Bitcoin is not guaranteed to be deflationary. It's deflationary when the economy is growing. It's inflationary when the economy is shrinking. Deflation will slow down economy, and inflation will accelerate economy. It's a stable self-correcting system, which would correct itself to match the average economic growth globally.
- acdha 5y ago
  Bitcoin is guaranteed to be deflationary as long as there’s a finite limit – if nothing else, lost keys would reduce the total over time. More importantly, the people hawking it _really_ want it to be deflationary because that effectively makes them landed gentry getting richer without any effort on their part. After a decade of that being integral to the sales pitch I would be extremely surprised to see any major holder support breaking the deflationary model.
  - Geee 5y ago
    There isn't monetary deflation in bitcoin (expect for lost coins). As a global reserve currency, bitcoin would act as an "index fund of everything". Economy is expected to grow, but it's not guaranteed. Which means that there's always a non-zero risk associated to it. There's more risk on short time scales, and less risk on long time scales.
    - Taniwha 5y ago
      There will be if it's successful - 90% of the bitcoins ever mined have already been mined, for bitcoin to be useful at a long term world wide level it needs to store enough value even as the size of the world economy grows - if it can't them it will become a limit on economic growth much as gold became in the last century. So because the number of bitcoin is fixed to remain relevant bitcoin will need to continually deflate (ie increase in value) so that there's enough to represent the size of the economy
  - lottin 5y ago
    No currency is guaranteed to be deflationary. You may guarantee that the currency supply will behave in a certain way (although even that is debatable), buy you cannot guarantee that the price level in terms of such a currency will continuously fall.
    - acdha 5y ago
      The fixed currency supply guarantees it: unless the economy is shrinking at the same rate, each BTC becomes more valuable over time and that’d cause purchase prices for goods to trend lower. This has been a key part of the sales pitch for a decade: buy now and it’ll be worth more later, guaranteed, but that’s not good for an economy since it heavily incentivizes holding onto anything you aren’t forced to spend. Since Bitcoin has no innate demand, that’s an especially dangerous cycle since almost everyone has alternatives.
narrator 5y ago
Nobel Prize winner F.A Hayek, who also famously predicted the denationalization of money in the 1970s[1], provided the excellent counterargument to this in the debate with the proto-Keynesians back in the 30s concerning stable supply money vs. inflationary money: https://mises.org/library/hayek-paradox-saving https://mises.org/library/hayek-paradox-saving Hayek was later interviewed in the 70s and said he was mystified when Keynes was promoted to godhood upon his death. He claimed the debate had not yet finished. [1] https://en.wikipedia.org/wiki/The_Denationalization_of_Money https://en.wikipedia.org/wiki/The_Denationalization_of_Money
- fladrif 5y ago
  The linked article doesn't address the effects of deflationary currency at all, it describes the notion of including capital in the description of economies.
  - narrator 5y ago
    It criticizes the statement by Keynes that savings leads to depression due to underconsumption and thus there must be regularly monetary stimulus, meaning expansion of government borrowing and hence, the money supply. Hayek was a proponent of the gold standard and fixed money supply at this time and the Keynesians promoted fiat money and a flexible money supply and monetary policy.
    - fladrif 5y ago
      I'm not familiar with Hayek, so you may need to fill in gaps where I may have them, but the argument in the article (as I understand) specifically establishes the context where savings are presumed invested into capital. How I understand deflationary currency is that investments are not incentivized, and would therefore not lead to the situation as described in the article.
      - narrator 5y ago
        Investment is naturally incentivized because the only reason capital is created is to lower the cost of production. If you build a factory, or invest in a machine to make things and it costs the same to manufacture those things in the factory or with the machine as it would to manufacture them by hand, why did you even build the factory in the first place? The inputs used to construct the factory would be better used for other things and thus the business loss from building a useless factory or unnecessary piece of equipment is the economically efficient because it is a misuse of labor and material inputs. We are not talking about deflationary money either. We are talking about stable money supply, which is what Bitcoin is.
imtringued 5y ago
Nice article. Pretty much matches what I have figured out myself but you gave it a new perspective that I hadn't thought of.

deleted 5y ago

[deleted]