5 ms·

Bitcoin is deflationary, a CBDC would not be. This is the biggest pro-Bitcoin argument.

by frankbreetz 4y ago

mirntyfirty 4y ago
Bitcoin also isn’t a currency.
zzbzq 4y ago
Bitcoin being deflationary is also one of the biggest arguments against BTC-as-currency
jameskilton 4y ago
Deflation is the worst possible state for a currency. An economy is defined as the flow of goods and services. Currency is the medium through which goods and services flow. Deflation encourages people to not spend their money. Not spending money means goods and services don't flow, means an economy collapses. That bitcoin / crypto people keep harping that deflation is a good thing proves to me that these people know nothing about economics and should never be trusted as such.
- deleted 4y ago
  [deleted]
- toomuchtodo 4y ago
  > That bitcoin / crypto people keep harping that deflation is a good thing proves to me that these people know nothing about economics and should never be trusted as such. They're desperately seeking a store of value (which isn’t wealth; it’s only wealth if productive or others need it and will trade something for it) that can't be devalued by humans, with expected results (value is constantly changing and subjective). As you mention, it shows a lack of economic understanding.
- snapcaster 4y ago
  This is repeated all the time, but nobody seems to provide evidence besides some offhanded comment about Japan. You realize this is an opinion or ideology not something like physics laws right?
  - JumpCrisscross 4y ago
    > nobody seems to provide evidence besides some offhanded comment about Japan...this is an opinion or ideology" That's because "since WWII, one country has come close to having both a depression and a deflation: Japan in the late 1990s" [1]. The source of policymakers' hesitance with deflation "seems to stem from the experience of the Great Depression, in which deflation and depression appear to have been tightly linked." We have limited data suggesting moderate deflation is any more damaging than moderate inflation. We have better-tested tools for fighting inflation. But with negative interest rates and QE (implying the existence of its inverse, i.e. the central bank selling short), deflation is less scary. The problem with Bitcoin is its fixed supply. Bitcoin would not produce steady deflation. It is inherently volatile, as the bullwhip effect of the credit system is left unmoderated. The failures of fixed-supply currencies are documented beyond the domain of "opinion or ideology," e.g. in studies around currency substitution [2]. [1] https://www.nber.org/system/files/working_papers/w10268/w10268.pdf https://www.nber.org/system/files/working_papers/w10268/w102... [2] https://en.wikipedia.org/wiki/Currency_substitution https://en.wikipedia.org/wiki/Currency_substitution
    - I_DRINK_KOOLAID 4y ago
      > We have limited data suggesting moderate deflation is any more damaging than moderate inflation You don't need data to understand how people would simply stop working and wait for their cash to appreciate as they do nothing. Except you can't consume or eat cash and also life is short and tomorrow is not guaranteed so when you decide that it's time want to spend it you'd not be better off in any way even after deflationary appreciation because everybody had the same brilliant idea and the huge mass of people stopping working caused a collapse in raw output of products and services. Part of me wishes this actually happens, because those who operate countercyclically and keep working when everybody stops to sit on their couch hoping for deflation to make them rich, would eventually make a fortune when sanity comes back and people realize they can't eat the zeros and ones in their bank account.
      - JumpCrisscross 4y ago
- berberous 4y ago
  Your privilege is showing. Many economies have collapsed or people have been severely harmed from runaway inflation. Even now in the US, the wealthy aren’t terribly affected by inflation, especially with home and stock prices rising more than enough to offset them, while the poor are increasingly struggling with currently no end in sight. Perhaps a Bitcoin w/ 2% inflation would have been better than a deflationary one, but I still question whether the average person in the average country is better off with the risk that their government mismanages target inflation than with an algorithmic deflationary Bitcoin. I also question whether Bitcoin being deflationary is really a bad thing when it’s also a store of wealth and not the only means of exchange in a country.
  - dragontamer 4y ago
    > Many economies have collapsed or people have been severely harmed from runaway inflation And the USA's economy was ruined in the 1930s by runaway deflation. The poor don't like inflation _OR_ deflation. Both suck. The rich has the ability to move money around to maximize their gains in any situation, so the rich aren't really harmed by either.
  - School-Cotton 4y ago
    > Many economies have collapsed or people have been severely harmed from runaway inflation. False dichotomy. The last 50 years of monetary policy in developed countries show that you can have moderate inflation (yes, sometimes a bit too much, like now, but moderate overall) without hyperinflation.
    - berberous 4y ago
      Do you think 50 years is all that long in the historical context? America showed that you could have hundreds of years of stable democracy until a simple combination of cable news, Twitter and a narcissistic president almost led to a coup. The Roman republic was stable for hundreds of years until it collapsed. The Turkish lira has lost more than 97 per cent of its value against the US dollar since January 2021. I agree with you that the 1950-2010 world order and U.S. monetary system was better than Bitcoin. Where we disagree I think, is with our confidence in the stability of human institutions and the likelihood that the world necessarily remains stable in that world order for the next 1,000.
- ramblerman 4y ago
  I think you misunderstand a fixed currency (like the US once had against the gold standard) and an economy that is in deflation.
  - JumpCrisscross 4y ago
    > like the US once had against the gold standard The gold standard isn't a fixed-supply currency. Gold was mined throughout the nineteenth century, coïncidentally, at about the rate of economic growth. When growth kept going while mining stalled, a series of economic crises pushed developing nations away from the standard.
- Proven 4y ago
- deleted 4y ago
  [deleted]
- jwarden 4y ago
  I think there are people who understand economics who think that inflation is often a good thing. Here for example is a quote from Investopedia’s article on Inflation: “Most of the time, deflation is unambiguously a positive trend for the economy, but it can also under certain conditions occur along with a contraction in the economy.” Now deflation caused by a deflationary currency is probably not unambiguously good in the same way as deflation caused by increased production. But are there not any respectable economists who would argue that a deflationary currency might not be so bad?
- throwawaymaths 4y ago
  > Deflation encourages people to not spend their money Oh the horrors! Maybe people will not spend their money on stupid shit, they might conserve instead of destroy the environment. Maybe the middle class wont be forced into participating in the casino-for-privileged-mbas that is the stock market. Maybe we will stop having a siphon that steals the labor value from the lower class and drops it on the doorstep of the rich.
  - hackyhacky 4y ago
    In a deflationary economy, it's not just consumers who stop spending, it's everyone: companies stop investing, employers stop hiring. This leads to a vicious cycle. History shows us that deflationary economies can be more damaging that inflationary.
- tastyfreeze 4y ago
  The argument that with deflationary currency nobody will spend is ridiculous. Everybody still needs to spend to buy whatever they need for daily life. Money will still be spent into the economy. The difference between moderate inflation and moderate deflation is what people do with their excess money. With inflation people will buy stuff just because stuff holds its value and money doesn't. With deflation people save their excess. The higher the inflation/deflation level the more pronounced the behavior of spending/saving. People having savings is a sign of a healthy economy. With savings there are more people that have an opportunity to invest. Investment provides real growth.
  - BoardsOfCanada 4y ago
    That's why no one could ever make any money selling computers or software. After all next month you'd get something better for less. /s
  - KallDrexx 4y ago
    Deflationary being bad has nothing to do with essential spending and everything to do with discretionary spending. I (and many people I know) don't buy games that we want to play right away because we know they will be on sale in a month or so, and can wait. If I expect houses to go down in price I will not put a lot of effort into buying a house, and instead rent for now. Used car prices right now are extraordinarily high, so I will not be upgrading my car until prices start coming down. I'm not buying a new graphics card because I think prices are inflated and I believe they will come down sometime in the next yea. Etc... A significant portion of our economy is reliant on discretionary spending, and when discretionary spending drops we usually end up in recessions, as companies that rely on that spending start layoffs.
  - deleted 4y ago
    [deleted]
- thaway2839 4y ago
  Since you're clearly using "spending" in a more economic sense, but most people will read it from the perspective of household finances and therefore interpret spending as morally wrong, I'll add that the spending you're discussing includes, and primarily is, investment. Both your run of the mill, deposit money in the bank which loans it out so all sorts of businesses can be built, and people can buy houses, cars, etc., and your more exotic VC and hedge fund investments.
- CapricornNoble 4y ago
  >>>Deflation encourages people to not spend their money. Not spending money means goods and services don't flow, means an economy collapses. How do we square that with the unending flow of junk that is produced with obsolescence baked in and disposed of? How do we square "economic growth uber alles!" with the constant warnings of man-made climate change and our impending doom due to wasting our resources on cheap shit from China? I would argue that the short-term time preference should balance the effects of inflation. I don't really care that a Lamborghini might cost half as much in 10 years. If I want to drive one TODAY bad enough, I will still buy it. If my umbrella has a hole in it and it's raining, if I want to be dry RIGHT NOW, I don't care that an umbrella is cheaper tomorrow. I would also argue that technological improvement is inherently deflationary, and that technological improvement is all about resource efficiency: accomplishing the same work with a smaller expenditure of resources. Even if rising demand were to lead to higher equilibrium prices, we should be balancing the economy in such ways that prices still fall or at worst remain static, to reflect the diminishing resource requirements for a given unit/widget produced.
- stuckinhell 4y ago
  You've made a pretty strong statement with an appeal to authority. Economic "authority" figures have gotten the economy wrong for 20 years. Maybe you should question your first principles more.
jqpabc123 4y ago
Bitcoin may not be inflationary but it is certainly depressionary. As in those who paid nearly $70k per Bitcoin after El Salvador declared it an official currency 7 months ago are probably feeling kinda depressed right now.
tablespoon 4y ago
> Bitcoin is deflationary, a CBDC would not be. This is the biggest pro-Bitcoin argument. That's not actually a pro-Bitcoin argument. It's just an artifact the peculiar ideologies that influenced Bitcoin's creator. Deflation hurts economic activity, but benefits hoarders.
JumpCrisscross 4y ago
> Bitcoin is deflationary, a CBDC would not be. This is the biggest pro-Bitcoin argument Except Bitcoin is not deflationary. It's fixed supply. Those are separate, if related, characteristics. In the last year it's been roughly flat, with the word "roughly" doing a lot of work, given its volatility that would make a Zimbabwean central banker blush.
- lampshades 4y ago
  Fixed supply is deflationary in a world where population increases. Whether or not population will continue to increase is another question.
  - JumpCrisscross 4y ago
    > Fixed supply is deflationary in a world where population increases This assumes the whole world uses the currency, which is untrue for every currency in the history of humanity, and that per capita output per person using the currency is at least flat, which is also questionable. Demographics are an input into monetary policy. But the effect is way fuzzier than you imply [1]. [1] https://ssl.nbp.pl/publikacje/materialy_i_studia/284_en.pdf https://ssl.nbp.pl/publikacje/materialy_i_studia/284_en.pdf
- freemint 4y ago
  Fixed supply -> almost certainly inflationary. It is only not inflationary if nobody ever makes a coin burn and nobody ever leaves less money in a that is worth less than a transaction to move it will cost.
andrewla 4y ago
> Bitcoin is deflationary This is a claim made repeatedly by Bitcoin proponents and opponents, based on various ideological differences. But the statement is nonsensical. The statement "Bitcoin is deflationary" is exactly equivalent to the statement "Bitcoin will always increase in value".
Fargoan 4y ago
Bitcoin is inflationary. What do you think block rewards are?

Bitcoin is deflationary, a CBDC would not be. This is the biggest pro-Bitcoin argument.

mirntyfirty 4y ago

Bitcoin also isn’t a currency.

zzbzq 4y ago

Bitcoin being deflationary is also one of the biggest arguments against BTC-as-currency

jameskilton 4y ago

Deflation is the worst possible state for a currency. An economy is defined as the flow of goods and services. Currency is the medium through which goods and services flow. Deflation encourages people to not spend their money. Not spending money means goods and services don't flow, means an economy collapses. That bitcoin / crypto people keep harping that deflation is a good thing proves to me that these people know nothing about economics and should never be trusted as such.

deleted 4y ago
[deleted]
toomuchtodo 4y ago
> That bitcoin / crypto people keep harping that deflation is a good thing proves to me that these people know nothing about economics and should never be trusted as such. They're desperately seeking a store of value (which isn’t wealth; it’s only wealth if productive or others need it and will trade something for it) that can't be devalued by humans, with expected results (value is constantly changing and subjective). As you mention, it shows a lack of economic understanding.
snapcaster 4y ago
This is repeated all the time, but nobody seems to provide evidence besides some offhanded comment about Japan. You realize this is an opinion or ideology not something like physics laws right?
- JumpCrisscross 4y ago
  > nobody seems to provide evidence besides some offhanded comment about Japan...this is an opinion or ideology" That's because "since WWII, one country has come close to having both a depression and a deflation: Japan in the late 1990s" [1]. The source of policymakers' hesitance with deflation "seems to stem from the experience of the Great Depression, in which deflation and depression appear to have been tightly linked." We have limited data suggesting moderate deflation is any more damaging than moderate inflation. We have better-tested tools for fighting inflation. But with negative interest rates and QE (implying the existence of its inverse, i.e. the central bank selling short), deflation is less scary. The problem with Bitcoin is its fixed supply. Bitcoin would not produce steady deflation. It is inherently volatile, as the bullwhip effect of the credit system is left unmoderated. The failures of fixed-supply currencies are documented beyond the domain of "opinion or ideology," e.g. in studies around currency substitution [2]. [1] https://www.nber.org/system/files/working_papers/w10268/w10268.pdf https://www.nber.org/system/files/working_papers/w10268/w102... [2] https://en.wikipedia.org/wiki/Currency_substitution https://en.wikipedia.org/wiki/Currency_substitution
  - I_DRINK_KOOLAID 4y ago
    > We have limited data suggesting moderate deflation is any more damaging than moderate inflation You don't need data to understand how people would simply stop working and wait for their cash to appreciate as they do nothing. Except you can't consume or eat cash and also life is short and tomorrow is not guaranteed so when you decide that it's time want to spend it you'd not be better off in any way even after deflationary appreciation because everybody had the same brilliant idea and the huge mass of people stopping working caused a collapse in raw output of products and services. Part of me wishes this actually happens, because those who operate countercyclically and keep working when everybody stops to sit on their couch hoping for deflation to make them rich, would eventually make a fortune when sanity comes back and people realize they can't eat the zeros and ones in their bank account.
    - JumpCrisscross 4y ago
berberous 4y ago
Your privilege is showing. Many economies have collapsed or people have been severely harmed from runaway inflation. Even now in the US, the wealthy aren’t terribly affected by inflation, especially with home and stock prices rising more than enough to offset them, while the poor are increasingly struggling with currently no end in sight. Perhaps a Bitcoin w/ 2% inflation would have been better than a deflationary one, but I still question whether the average person in the average country is better off with the risk that their government mismanages target inflation than with an algorithmic deflationary Bitcoin. I also question whether Bitcoin being deflationary is really a bad thing when it’s also a store of wealth and not the only means of exchange in a country.
- dragontamer 4y ago
  > Many economies have collapsed or people have been severely harmed from runaway inflation And the USA's economy was ruined in the 1930s by runaway deflation. The poor don't like inflation _OR_ deflation. Both suck. The rich has the ability to move money around to maximize their gains in any situation, so the rich aren't really harmed by either.
- School-Cotton 4y ago
  > Many economies have collapsed or people have been severely harmed from runaway inflation. False dichotomy. The last 50 years of monetary policy in developed countries show that you can have moderate inflation (yes, sometimes a bit too much, like now, but moderate overall) without hyperinflation.
  - berberous 4y ago
    Do you think 50 years is all that long in the historical context? America showed that you could have hundreds of years of stable democracy until a simple combination of cable news, Twitter and a narcissistic president almost led to a coup. The Roman republic was stable for hundreds of years until it collapsed. The Turkish lira has lost more than 97 per cent of its value against the US dollar since January 2021. I agree with you that the 1950-2010 world order and U.S. monetary system was better than Bitcoin. Where we disagree I think, is with our confidence in the stability of human institutions and the likelihood that the world necessarily remains stable in that world order for the next 1,000.
ramblerman 4y ago
I think you misunderstand a fixed currency (like the US once had against the gold standard) and an economy that is in deflation.
- JumpCrisscross 4y ago
  > like the US once had against the gold standard The gold standard isn't a fixed-supply currency. Gold was mined throughout the nineteenth century, coïncidentally, at about the rate of economic growth. When growth kept going while mining stalled, a series of economic crises pushed developing nations away from the standard.
Proven 4y ago
deleted 4y ago
[deleted]
jwarden 4y ago
I think there are people who understand economics who think that inflation is often a good thing. Here for example is a quote from Investopedia’s article on Inflation: “Most of the time, deflation is unambiguously a positive trend for the economy, but it can also under certain conditions occur along with a contraction in the economy.” Now deflation caused by a deflationary currency is probably not unambiguously good in the same way as deflation caused by increased production. But are there not any respectable economists who would argue that a deflationary currency might not be so bad?
throwawaymaths 4y ago
> Deflation encourages people to not spend their money Oh the horrors! Maybe people will not spend their money on stupid shit, they might conserve instead of destroy the environment. Maybe the middle class wont be forced into participating in the casino-for-privileged-mbas that is the stock market. Maybe we will stop having a siphon that steals the labor value from the lower class and drops it on the doorstep of the rich.
- hackyhacky 4y ago
  In a deflationary economy, it's not just consumers who stop spending, it's everyone: companies stop investing, employers stop hiring. This leads to a vicious cycle. History shows us that deflationary economies can be more damaging that inflationary.
tastyfreeze 4y ago
The argument that with deflationary currency nobody will spend is ridiculous. Everybody still needs to spend to buy whatever they need for daily life. Money will still be spent into the economy. The difference between moderate inflation and moderate deflation is what people do with their excess money. With inflation people will buy stuff just because stuff holds its value and money doesn't. With deflation people save their excess. The higher the inflation/deflation level the more pronounced the behavior of spending/saving. People having savings is a sign of a healthy economy. With savings there are more people that have an opportunity to invest. Investment provides real growth.
- BoardsOfCanada 4y ago
  That's why no one could ever make any money selling computers or software. After all next month you'd get something better for less. /s
- KallDrexx 4y ago
  Deflationary being bad has nothing to do with essential spending and everything to do with discretionary spending. I (and many people I know) don't buy games that we want to play right away because we know they will be on sale in a month or so, and can wait. If I expect houses to go down in price I will not put a lot of effort into buying a house, and instead rent for now. Used car prices right now are extraordinarily high, so I will not be upgrading my car until prices start coming down. I'm not buying a new graphics card because I think prices are inflated and I believe they will come down sometime in the next yea. Etc... A significant portion of our economy is reliant on discretionary spending, and when discretionary spending drops we usually end up in recessions, as companies that rely on that spending start layoffs.
- deleted 4y ago
  [deleted]
thaway2839 4y ago
Since you're clearly using "spending" in a more economic sense, but most people will read it from the perspective of household finances and therefore interpret spending as morally wrong, I'll add that the spending you're discussing includes, and primarily is, investment. Both your run of the mill, deposit money in the bank which loans it out so all sorts of businesses can be built, and people can buy houses, cars, etc., and your more exotic VC and hedge fund investments.
CapricornNoble 4y ago
>>>Deflation encourages people to not spend their money. Not spending money means goods and services don't flow, means an economy collapses. How do we square that with the unending flow of junk that is produced with obsolescence baked in and disposed of? How do we square "economic growth uber alles!" with the constant warnings of man-made climate change and our impending doom due to wasting our resources on cheap shit from China? I would argue that the short-term time preference should balance the effects of inflation. I don't really care that a Lamborghini might cost half as much in 10 years. If I want to drive one TODAY bad enough, I will still buy it. If my umbrella has a hole in it and it's raining, if I want to be dry RIGHT NOW, I don't care that an umbrella is cheaper tomorrow. I would also argue that technological improvement is inherently deflationary, and that technological improvement is all about resource efficiency: accomplishing the same work with a smaller expenditure of resources. Even if rising demand were to lead to higher equilibrium prices, we should be balancing the economy in such ways that prices still fall or at worst remain static, to reflect the diminishing resource requirements for a given unit/widget produced.
stuckinhell 4y ago
You've made a pretty strong statement with an appeal to authority. Economic "authority" figures have gotten the economy wrong for 20 years. Maybe you should question your first principles more.

jqpabc123 4y ago

Bitcoin may not be inflationary but it is certainly depressionary. As in those who paid nearly $70k per Bitcoin after El Salvador declared it an official currency 7 months ago are probably feeling kinda depressed right now.

tablespoon 4y ago

> Bitcoin is deflationary, a CBDC would not be. This is the biggest pro-Bitcoin argument. That's not actually a pro-Bitcoin argument. It's just an artifact the peculiar ideologies that influenced Bitcoin's creator. Deflation hurts economic activity, but benefits hoarders.

JumpCrisscross 4y ago

> Bitcoin is deflationary, a CBDC would not be. This is the biggest pro-Bitcoin argument Except Bitcoin is not deflationary. It's fixed supply. Those are separate, if related, characteristics. In the last year it's been roughly flat, with the word "roughly" doing a lot of work, given its volatility that would make a Zimbabwean central banker blush.

lampshades 4y ago
Fixed supply is deflationary in a world where population increases. Whether or not population will continue to increase is another question.
- JumpCrisscross 4y ago
  > Fixed supply is deflationary in a world where population increases This assumes the whole world uses the currency, which is untrue for every currency in the history of humanity, and that per capita output per person using the currency is at least flat, which is also questionable. Demographics are an input into monetary policy. But the effect is way fuzzier than you imply [1]. [1] https://ssl.nbp.pl/publikacje/materialy_i_studia/284_en.pdf https://ssl.nbp.pl/publikacje/materialy_i_studia/284_en.pdf
freemint 4y ago
Fixed supply -> almost certainly inflationary. It is only not inflationary if nobody ever makes a coin burn and nobody ever leaves less money in a that is worth less than a transaction to move it will cost.

andrewla 4y ago

> Bitcoin is deflationary This is a claim made repeatedly by Bitcoin proponents and opponents, based on various ideological differences. But the statement is nonsensical. The statement "Bitcoin is deflationary" is exactly equivalent to the statement "Bitcoin will always increase in value".

Fargoan 4y ago

Bitcoin is inflationary. What do you think block rewards are?