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You seem pretty accustomed to economics. Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflat

by atmosx 13y ago

You seem pretty accustomed to economics. Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency? Then again, it's not a design a flaw - as I once thought - it's a clear choice: Why would anyone would want to own a non-deflationary asset? :-) So actually, in my view, BTC as a currency is already failed. No one will be eager to buy online (perform an actual exchange) when he can buy the same items using USD, because BTC will possibly have a higher value tomorrow. While the USD almost certainly will not. Best Regards, ps. FIAT currency is regulated by the FED and you know who runs the FED. BTC market is run by those who have huge amounts of BTC and you don't have a clue about who they are. Not sure which one is more secure for a society.

natrius 13y ago
USD and BTC are very easy to interchange. I see no difference between the dollars in my wallet and the Bitcoin in my e-wallet from a spending perspective. I'd spend my Bitcoin at any merchant willing to accept them. I think their value will go up, but I can buy more at the same price at which I just spent them.
Aqueous 13y ago
It depends on how fast the deflation happens. BitCoin is not all that useful as a currency right now because it's value is so volatile. This is because it is subject to huge increases in demand as it spreads to more places across the globe. It is not hindered by any export controls or borders, which means it can "infect" whole nations/societies/cultures in lumps, as we saw recently with China, sparking a huge jump in price. But eventually everyone will have heard of BitCoin, and I believe BitCoin's growth will slow down, and its curve will flatten and look more stable. The more people have BitCoin the less small groups of individuals, or even countries, can influence its price. But look at the growth of vendors who are accepting BitCoin over the same period. For the same reason it doesn't make a whole lot of reason to spend BitCoin during this growth phase, it does make sense to accept BitCoins. And even though most merchants don't wish to speculate with their revenue, even keeping a "float" of currency in BitCoin could be profitable, and so it is reasonable that merchants and vendors might want to accept BitCoin even though not a whole lot people are spending them these days. That can only increase BitCoin's value as a currency in the long run. If it was unwise or wise to spend something based on its changing value, no matter how slowly, then it would be rational for me to want to spend all my dollars for goods and services today because the dollar value is going down. But the US dollar isn't depreciating at a fast enough rate for it to be rational for me to spend all of my dollars today, right? This is because the currency is inflating at a pretty slow percentage rate. A slow inflation rate is not all that different from a slow deflation rate. It all depends on what will ultimately be the rate of deflation of BitCoin. If it is sufficiently slow(1% annually, for instance) it will be useful as a currency. If it is all over the place, it won't be.
- shimon 13y ago
  How does the volatility of BTC make it desirable for merchants to accept it? Either they hold BTC and are exposed to the volatility, or they convert to a fiat currency and are exposed to some transaction fees. Perhaps the transaction fees turn out to be lower than those for credit cards, in which case BitCoin maybe becomes an alternative payment network.
  - fm8892 13y ago
    Its not the volatility they're after--they want to hold a deflationary currency (which, at the moment, happens to be volatile).
    - furyofantares 13y ago
      Aqueous was speaking about BTC right now, in this growth period. But BTC is currently inflationary.
      - SectioAurea 13y ago
        Good point - the early "hockey stick" did in fact end recently with the first ever bearish 10/21 EMA crossover in the BTC/USD 12h timeframe.
nefreat 13y ago
> You seem pretty accustomed to economics. Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency? This is identical to arguing: Why would anyone buy computers when they are getting cheaper every year. At some point you make a choice where your preference for owning a computer is greater than your preference to save money. > So actually, in my view, BTC as a currency is already failed. No one will be eager to buy online (perform an actual exchange) when he can buy the same items using USD, because BTC will possibly have a higher value tomorrow. While the USD almost certainly will not. Gold is deflationary. When gold was the primary currency for the world commerce was very vibrant. Gold not being currency is a fairly recent development. People currently purchase things online with bitcoins when they could use dollars but choose to use bitcoins. I think it's very early to write off bitcoins as a failed currency.
yummyfajitas 13y ago
Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency? Why would anyone ever cash out of any position with a positive rate of return? By this logic everyone should stop consuming and put all their money into SPY, or similar market tracking indices. Yet they don't.
- saosebastiao 13y ago
  Exactly. The traditional keynesian definition of rationality (wrt inflation/deflation) is so far removed from reality that it should be a joke by now. Nobody actually behaves the way their mental model says they should.
  - gnaritas 13y ago
    Except that's not what Keynseian's say, and people do behave the way Keynseian's say, deflation does curb spending and inflation does encourage it; Keynseian's don't claim people will stop spending, they claim they'll spend less.
    - saosebastiao 13y ago
      None of them seemed to act like that was their view when we were looking at 0% inflation. The general attitude of mainstream Keynesians was that we were on the verge of an unstopable downward spiral if we didn't act in that very moment...which I remind you was driven by housing prices crashing back down after their biggest bubble ever. In reality, people don't sense inflation or deflation as it is reported by the CPI, PPI, or any other price index. They sense it locally on a product by product basis. And it is still entirely uncertain as to the relative attribution of reduced income vs deflation as a cause of reduced spending.
- haberman 13y ago
  I think the better question is: why would anyone invest if simply holding currency is an investment? If you are an entrepreneur or a company going IPO, the you'd have to offer a better expected return than the currency itself. Your competition for investment dollars would be not only other companies, but cash.
sausman 13y ago
If your assumption were true, I wouldn't have bought a computer because I could have delayed my purchase and bought a cheaper+better one later. Even if I forecast computers falling from the sky in a year I would still buy one now if I didn't have one already. Wouldn't you?

by atmosx 13y ago

natrius 13y ago

USD and BTC are very easy to interchange. I see no difference between the dollars in my wallet and the Bitcoin in my e-wallet from a spending perspective. I'd spend my Bitcoin at any merchant willing to accept them. I think their value will go up, but I can buy more at the same price at which I just spent them.

Aqueous 13y ago

It depends on how fast the deflation happens. BitCoin is not all that useful as a currency right now because it's value is so volatile. This is because it is subject to huge increases in demand as it spreads to more places across the globe. It is not hindered by any export controls or borders, which means it can "infect" whole nations/societies/cultures in lumps, as we saw recently with China, sparking a huge jump in price. But eventually everyone will have heard of BitCoin, and I believe BitCoin's growth will slow down, and its curve will flatten and look more stable. The more people have BitCoin the less small groups of individuals, or even countries, can influence its price. But look at the growth of vendors who are accepting BitCoin over the same period. For the same reason it doesn't make a whole lot of reason to spend BitCoin during this growth phase, it does make sense to accept BitCoins. And even though most merchants don't wish to speculate with their revenue, even keeping a "float" of currency in BitCoin could be profitable, and so it is reasonable that merchants and vendors might want to accept BitCoin even though not a whole lot people are spending them these days. That can only increase BitCoin's value as a currency in the long run. If it was unwise or wise to spend something based on its changing value, no matter how slowly, then it would be rational for me to want to spend all my dollars for goods and services today because the dollar value is going down. But the US dollar isn't depreciating at a fast enough rate for it to be rational for me to spend all of my dollars today, right? This is because the currency is inflating at a pretty slow percentage rate. A slow inflation rate is not all that different from a slow deflation rate. It all depends on what will ultimately be the rate of deflation of BitCoin. If it is sufficiently slow(1% annually, for instance) it will be useful as a currency. If it is all over the place, it won't be.

shimon 13y ago
How does the volatility of BTC make it desirable for merchants to accept it? Either they hold BTC and are exposed to the volatility, or they convert to a fiat currency and are exposed to some transaction fees. Perhaps the transaction fees turn out to be lower than those for credit cards, in which case BitCoin maybe becomes an alternative payment network.
- fm8892 13y ago
  Its not the volatility they're after--they want to hold a deflationary currency (which, at the moment, happens to be volatile).
  - furyofantares 13y ago
    Aqueous was speaking about BTC right now, in this growth period. But BTC is currently inflationary.
    - SectioAurea 13y ago
      Good point - the early "hockey stick" did in fact end recently with the first ever bearish 10/21 EMA crossover in the BTC/USD 12h timeframe.

nefreat 13y ago

> You seem pretty accustomed to economics. Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency? This is identical to arguing: Why would anyone buy computers when they are getting cheaper every year. At some point you make a choice where your preference for owning a computer is greater than your preference to save money. > So actually, in my view, BTC as a currency is already failed. No one will be eager to buy online (perform an actual exchange) when he can buy the same items using USD, because BTC will possibly have a higher value tomorrow. While the USD almost certainly will not. Gold is deflationary. When gold was the primary currency for the world commerce was very vibrant. Gold not being currency is a fairly recent development. People currently purchase things online with bitcoins when they could use dollars but choose to use bitcoins. I think it's very early to write off bitcoins as a failed currency.

yummyfajitas 13y ago

Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency? Why would anyone ever cash out of any position with a positive rate of return? By this logic everyone should stop consuming and put all their money into SPY, or similar market tracking indices. Yet they don't.

saosebastiao 13y ago
Exactly. The traditional keynesian definition of rationality (wrt inflation/deflation) is so far removed from reality that it should be a joke by now. Nobody actually behaves the way their mental model says they should.
- gnaritas 13y ago
  Except that's not what Keynseian's say, and people do behave the way Keynseian's say, deflation does curb spending and inflation does encourage it; Keynseian's don't claim people will stop spending, they claim they'll spend less.
  - saosebastiao 13y ago
    None of them seemed to act like that was their view when we were looking at 0% inflation. The general attitude of mainstream Keynesians was that we were on the verge of an unstopable downward spiral if we didn't act in that very moment...which I remind you was driven by housing prices crashing back down after their biggest bubble ever. In reality, people don't sense inflation or deflation as it is reported by the CPI, PPI, or any other price index. They sense it locally on a product by product basis. And it is still entirely uncertain as to the relative attribution of reduced income vs deflation as a cause of reduced spending.
haberman 13y ago
I think the better question is: why would anyone invest if simply holding currency is an investment? If you are an entrepreneur or a company going IPO, the you'd have to offer a better expected return than the currency itself. Your competition for investment dollars would be not only other companies, but cash.

sausman 13y ago

If your assumption were true, I wouldn't have bought a computer because I could have delayed my purchase and bought a cheaper+better one later. Even if I forecast computers falling from the sky in a year I would still buy one now if I didn't have one already. Wouldn't you?