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Economics noob here. Shouldn't very high inflation in US on goods priced with USD + rising global food prices actually bump up the price of BTC? I thought BTC

Economics noob here. Shouldn't very high inflation in US on goods priced with USD + rising global food prices actually bump up the price of BTC? I thought BTC has zero inflation baked in the algorithm, so it should actually move the opposite direction against any currency that experience high inflation right now. I want to be educated.

eunos 4y ago
Likely explanation is that money used to buy Bitcoin came from the JPow's free money reflected from the 0 rate. When that stopped so does the Bitcoin purchasing.
jjeaff 4y ago
The rules are different when you are talking about a purely speculative instrument with near zero utility like Bitcoin.
throw0101a 4y ago
> Shouldn't very high inflation in US on goods priced with USD + rising global food costs actually bump up the price of BTC? Turns out 'commodities' (to use the term loosely) are worth whatever people think they are worth, and that includes 'currencies' (loose term) like Bitcoin. There is no "inherent" value to anything, only the value we humans put on them. Strictly speaking, the only things that are probably "inherently" valuable to humans are: air/oxygen, shelter, water, food. Everything else is a psychological 'trick' we play on our selves to allow for functional socities.
unicornmama 4y ago
See my thread above. Real money was borrowed with crypto as collatoral - this is unwinding.
kareemsabri 4y ago
The price of BTC is based on the bid-ask spread on BTC exchanges, which will move up and down based on the ratio of buyers to sellers. More buyers, the price goes up. More sellers, the price goes down. This is an oversimplification but good enough for these purposes. So in order for the price to go up when inflation goes up, we would need more people to want to buy BTC in response to inflation. This does not appear to be the case, for a number of reasons. One reason is, when prices rise people spend more (even if they don't adjust what they buy, which they often do) so they will have less money available to buy BTC, even if they wanted to. Another reason is, the economic and financial systems (including crypto) are interconnected, so disruptions in one can cause actions in another. For example, if stocks go down 70% maybe I'll sell some BTC to buy some cheap stocks. Or maybe I'll get spooked and just stop buying anything. There's more but that's my read on it.
deleted 4y ago
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PragmaticPulp 4y ago
The inflation hedge narrative never actually made economic or even logical sense. It’s true that Bitcoin itself will have a fixed supply some day in the future when mining new block rewards go to zero, but you would still have to overlook the fact that Bitcoin as a resource was arbitrarily willed into existence just like the 10,000+ other coins and more that are being created every day. If you look at the crypto space as a whole, coins and NFTs and mining rewards are being created at an unsustainable pace. The only thing driving prices up is inflows of speculative money to the space, and as soon as those inflows stop, prices across the board will crash exactly like we’re seeing. Bitcoin proponents will try to push that argument that Bitcoin should be the only crypto considered and all other coins ignored, but it doesn’t really work that way in the real world. Even if we look at Bitcoin as the coin and a digital version of gold, a lot of people are surprised to learn that even actual gold hasn’t performed all that well as an investment. If you want an inflation hedge, investing in actual things that are scarce, in demand, and hard to produce is key. A digital currency that was imagined into existence with computer code can be arbitrarily scarce enough, but that alone doesn’t make it valuable. It has to remain in demand to keep the price up, and Bitcoin’s demand is almost entirely driven by speculators hoping to get rich quickly. Once the coin stops being viewed as a way to get rich quickly, the demand dries up and prices start crashing.
lottin 4y ago
Price is an extrinsic property assets, which means it cannot be "baked into" an asset. The whole idea that bitcoin is a deflationary asset is complete nonsense and propaganda.
- alangibson 4y ago
  It's deflationary when viewed as money for the same reason that gold is.
  - lottin 4y ago
    Again, there's no such thing as a deflationary currency. Under the gold standard, countries experienced periods of inflation and periods of deflation.
    - alangibson 4y ago
      Check out the linked pdf by Bernanke from https://isps.yale.edu/news/blog/2014/06/the-perils-of-bitcoin-as-currency https://isps.yale.edu/news/blog/2014/06/the-perils-of-bitcoi... > The link between deflation and adherence to the gold standard, shown in table 2.2, seems quite clear. As noted by Choudhri and Kochin (1980), Spain's abstention from the gold standard insulated that country from the gen- eral deflation; New Zealand and Australia, presumably because they retained links to sterling despite early abandonment of the strict gold standard, did however experience some deflation. Among countries on the gold standard as of 1931, there is a rather uniform experience of about a 13% deflation in both 1930 and 1931. But after 1931 there is a sharp divergence between those countries on and those off the gold standard. Price levels in countries off the gold standard have stabilized by 1933 (with one or two exceptions), and these countries experience mild inflations in 1934-36. In contrast, the gold standard countries continue to deflate, although at a slower rate, until the gold stan- dard's dissolution in 1936.
      - lottin 4y ago
        Bernanke is talking about the deflationary period that started with the Great Depression in 1929. He does describe a "potential deflationary bias" of the gold standard during the interwar period (which was different from the gold standard that existed before 1914) that arose as a result of the sterilisation policies that some countries adopted: > In theory, under the "rules of the game", central banks of countries experiencing gold inflows were supposed to assist the price-spice flow mechanism by expanding domestic money supplies and inflating, while deficit countries were supposed to reduce money supply and deflate. In practice, [...] no sanction prevented surplus countries from sterilizing gold inflows and accumulating reserves. In other words, under the gold standard, surplus countries were expected to experience inflation, while deficit countries were supposed to experience deflation. Some surplus countries (e.g. France) conducted policies that prevented this mechanism from taking place by not letting the money supply grow with gold inflows. It was these policies, not the gold standard itself, what created a deflationary bias.
chaosbutters314 4y ago
it will, once the over leveraged have covered their margin calls. there is a reason people are still calling for the $400k price soon
Someone 4y ago
> I thought BTC has zero inflation baked in the algorithm Only if it were the only currency in the world, and the amount of value in the world doesn’t decrease significantly. As soon as there’s more than one currency, the market could decide the relative values of the two changed overnight. Also, if the amount of value in the world were to decrease significantly, you still would see inflation (as, for example, one can see in times of war, when the amount of money doesn’t change much, but supply for some goods falls, while demand stays the same)
- Someone 4y ago
  > Only if it were the only currency in the world Reply to self: not even then. If the people lose trust in the only currency available (say because of a rumor that the maker of it keeps printing new money), there’s always the option of going back to a barter economy.
adverbly 4y ago
Another noob here, but I don't think you need to be a pro to understand really... 1) Price(t) = f(demand(t), supply(t)) 2) Inflation hedges have consistent Price over time: Price(t) = f() 3) By the above two, this means that either: a) demand and supply don't change at all over time b) demand and supply both change by exactly the right amount given external factors Realistically, a true inflation hedge does not exist because demand is almost never constant over time. BTC has constant supply, but obviously demand will drop hugely during a depression because people would rather have food than BTC. Same problem with gold. Same problem with land. The reality is simple really: you can't ignore the environment. If you want to properly allocate resources, you're just gonna need to actually speculate correctly about what future demand and supply will be.
- sgt101 4y ago
  >Same problem with land. ahh - that's where we differ; land == food. farmland is pretty good vs inflation.
  - adverbly 4y ago
    The price of food(and likewise farmland) varies hugely though. A function of population, location, supply chains, shipping costs, import tariffs, flavors of the month, the amount of disposable income in the population etc...
Meandering 4y ago
Inflation is where the value of a dollar decreases and the cost of products increase(or inflates). You can see inflation as a monetary phenomenon where they increase the supply of dollars and you need more dollars to exchange for the same product. This can intersect with the other source of inflation where product prices increase due to supply constraints. People thought that BTC would be treated like gold. Where it would act in opposition to the stock market. If you ignore all the terminology and equations, then you can focus on the behavior of the investors. If investors buy, sell, and perceive BTC as a type of stock, then it will behave as stock. As inflation occurs, it will project into the crypto market via speculative investment. The "inflation proof" concept of bitcoin is that there is a fixed supply. So, monetary inflation cannot occur within the currency itself. However, in the context of the larger financial market, it will be affected by systemic inflation.
deleted 4y ago
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JustLurking2022 4y ago
Bitcoin's value is derived from loads of people having excess money that they could use to speculate. It has no intrinsic utility. When the choice is to buy food and fuel or a token that only gets more valuable if you can find someone with even more money to burn, people start to get a lot more practical as the money gets tighter.

eunos 4y ago

Likely explanation is that money used to buy Bitcoin came from the JPow's free money reflected from the 0 rate. When that stopped so does the Bitcoin purchasing.

jjeaff 4y ago

The rules are different when you are talking about a purely speculative instrument with near zero utility like Bitcoin.

throw0101a 4y ago

> Shouldn't very high inflation in US on goods priced with USD + rising global food costs actually bump up the price of BTC? Turns out 'commodities' (to use the term loosely) are worth whatever people think they are worth, and that includes 'currencies' (loose term) like Bitcoin. There is no "inherent" value to anything, only the value we humans put on them. Strictly speaking, the only things that are probably "inherently" valuable to humans are: air/oxygen, shelter, water, food. Everything else is a psychological 'trick' we play on our selves to allow for functional socities.

unicornmama 4y ago

See my thread above. Real money was borrowed with crypto as collatoral - this is unwinding.

kareemsabri 4y ago

The price of BTC is based on the bid-ask spread on BTC exchanges, which will move up and down based on the ratio of buyers to sellers. More buyers, the price goes up. More sellers, the price goes down. This is an oversimplification but good enough for these purposes. So in order for the price to go up when inflation goes up, we would need more people to want to buy BTC in response to inflation. This does not appear to be the case, for a number of reasons. One reason is, when prices rise people spend more (even if they don't adjust what they buy, which they often do) so they will have less money available to buy BTC, even if they wanted to. Another reason is, the economic and financial systems (including crypto) are interconnected, so disruptions in one can cause actions in another. For example, if stocks go down 70% maybe I'll sell some BTC to buy some cheap stocks. Or maybe I'll get spooked and just stop buying anything. There's more but that's my read on it.

deleted 4y ago

[deleted]

PragmaticPulp 4y ago

The inflation hedge narrative never actually made economic or even logical sense. It’s true that Bitcoin itself will have a fixed supply some day in the future when mining new block rewards go to zero, but you would still have to overlook the fact that Bitcoin as a resource was arbitrarily willed into existence just like the 10,000+ other coins and more that are being created every day. If you look at the crypto space as a whole, coins and NFTs and mining rewards are being created at an unsustainable pace. The only thing driving prices up is inflows of speculative money to the space, and as soon as those inflows stop, prices across the board will crash exactly like we’re seeing. Bitcoin proponents will try to push that argument that Bitcoin should be the only crypto considered and all other coins ignored, but it doesn’t really work that way in the real world. Even if we look at Bitcoin as the coin and a digital version of gold, a lot of people are surprised to learn that even actual gold hasn’t performed all that well as an investment. If you want an inflation hedge, investing in actual things that are scarce, in demand, and hard to produce is key. A digital currency that was imagined into existence with computer code can be arbitrarily scarce enough, but that alone doesn’t make it valuable. It has to remain in demand to keep the price up, and Bitcoin’s demand is almost entirely driven by speculators hoping to get rich quickly. Once the coin stops being viewed as a way to get rich quickly, the demand dries up and prices start crashing.

lottin 4y ago

Price is an extrinsic property assets, which means it cannot be "baked into" an asset. The whole idea that bitcoin is a deflationary asset is complete nonsense and propaganda.

alangibson 4y ago
It's deflationary when viewed as money for the same reason that gold is.
- lottin 4y ago
  Again, there's no such thing as a deflationary currency. Under the gold standard, countries experienced periods of inflation and periods of deflation.
  - alangibson 4y ago
    Check out the linked pdf by Bernanke from https://isps.yale.edu/news/blog/2014/06/the-perils-of-bitcoin-as-currency https://isps.yale.edu/news/blog/2014/06/the-perils-of-bitcoi... > The link between deflation and adherence to the gold standard, shown in table 2.2, seems quite clear. As noted by Choudhri and Kochin (1980), Spain's abstention from the gold standard insulated that country from the gen- eral deflation; New Zealand and Australia, presumably because they retained links to sterling despite early abandonment of the strict gold standard, did however experience some deflation. Among countries on the gold standard as of 1931, there is a rather uniform experience of about a 13% deflation in both 1930 and 1931. But after 1931 there is a sharp divergence between those countries on and those off the gold standard. Price levels in countries off the gold standard have stabilized by 1933 (with one or two exceptions), and these countries experience mild inflations in 1934-36. In contrast, the gold standard countries continue to deflate, although at a slower rate, until the gold stan- dard's dissolution in 1936.
    - lottin 4y ago
      Bernanke is talking about the deflationary period that started with the Great Depression in 1929. He does describe a "potential deflationary bias" of the gold standard during the interwar period (which was different from the gold standard that existed before 1914) that arose as a result of the sterilisation policies that some countries adopted: > In theory, under the "rules of the game", central banks of countries experiencing gold inflows were supposed to assist the price-spice flow mechanism by expanding domestic money supplies and inflating, while deficit countries were supposed to reduce money supply and deflate. In practice, [...] no sanction prevented surplus countries from sterilizing gold inflows and accumulating reserves. In other words, under the gold standard, surplus countries were expected to experience inflation, while deficit countries were supposed to experience deflation. Some surplus countries (e.g. France) conducted policies that prevented this mechanism from taking place by not letting the money supply grow with gold inflows. It was these policies, not the gold standard itself, what created a deflationary bias.

chaosbutters314 4y ago

it will, once the over leveraged have covered their margin calls. there is a reason people are still calling for the $400k price soon

Someone 4y ago

> I thought BTC has zero inflation baked in the algorithm Only if it were the only currency in the world, and the amount of value in the world doesn’t decrease significantly. As soon as there’s more than one currency, the market could decide the relative values of the two changed overnight. Also, if the amount of value in the world were to decrease significantly, you still would see inflation (as, for example, one can see in times of war, when the amount of money doesn’t change much, but supply for some goods falls, while demand stays the same)

Someone 4y ago
> Only if it were the only currency in the world Reply to self: not even then. If the people lose trust in the only currency available (say because of a rumor that the maker of it keeps printing new money), there’s always the option of going back to a barter economy.

adverbly 4y ago

Another noob here, but I don't think you need to be a pro to understand really... 1) Price(t) = f(demand(t), supply(t)) 2) Inflation hedges have consistent Price over time: Price(t) = f() 3) By the above two, this means that either: a) demand and supply don't change at all over time b) demand and supply both change by exactly the right amount given external factors Realistically, a true inflation hedge does not exist because demand is almost never constant over time. BTC has constant supply, but obviously demand will drop hugely during a depression because people would rather have food than BTC. Same problem with gold. Same problem with land. The reality is simple really: you can't ignore the environment. If you want to properly allocate resources, you're just gonna need to actually speculate correctly about what future demand and supply will be.

sgt101 4y ago
>Same problem with land. ahh - that's where we differ; land == food. farmland is pretty good vs inflation.
- adverbly 4y ago
  The price of food(and likewise farmland) varies hugely though. A function of population, location, supply chains, shipping costs, import tariffs, flavors of the month, the amount of disposable income in the population etc...

Meandering 4y ago

Inflation is where the value of a dollar decreases and the cost of products increase(or inflates). You can see inflation as a monetary phenomenon where they increase the supply of dollars and you need more dollars to exchange for the same product. This can intersect with the other source of inflation where product prices increase due to supply constraints. People thought that BTC would be treated like gold. Where it would act in opposition to the stock market. If you ignore all the terminology and equations, then you can focus on the behavior of the investors. If investors buy, sell, and perceive BTC as a type of stock, then it will behave as stock. As inflation occurs, it will project into the crypto market via speculative investment. The "inflation proof" concept of bitcoin is that there is a fixed supply. So, monetary inflation cannot occur within the currency itself. However, in the context of the larger financial market, it will be affected by systemic inflation.

deleted 4y ago

[deleted]

JustLurking2022 4y ago

Bitcoin's value is derived from loads of people having excess money that they could use to speculate. It has no intrinsic utility. When the choice is to buy food and fuel or a token that only gets more valuable if you can find someone with even more money to burn, people start to get a lot more practical as the money gets tighter.