[hn_throw_1234]

> USD is inflationary. Ceteris paribus, a rational actor would generally prefer to hold something deflationary. The (epsilon-) no-arbitrage argument suggests that the frequently raised “but then no one will ever invest in things” objection doesn’t actually make any sense.

This is only true for savers and the vast majority of Americans, likely the world, are debtors (source: http://time.com/money/4709270/americans-die-in-debt/).

[wyager]

Interest rates would be lower with bitcoin. Again, consider this from the no-arbitrage angle. If interest rates weren’t correspondingly lower for loans denominated in deflationary assets, there would be an obvious and low-overhead arbitrage opportunity. So debtors don’t actually gain anything unless the loan is fixed-rate and the inflation rate increases.

[hn_throw_1234]

I can't see how the no arbitrage hypothesis applies here. You're talking about different currencies. No arbitrage doesn't mean that whatever you do to the world won't change anything.

That said, you're probably right that interest rates would be lower since the demand for debt would go down since Bitcoin is deflationary but then again that goes against what you stated in the first place.

[wyager]

Arbitrage opportunity if bitcoin and USD interest rates are the same, but the EV of holding a bitcoin is higher than holding a dollar: borrow dollars, buy bitcoins, loan bitcoins at current rate, sell bitcoins at repayment, your returns are equal to interest returns plus deflation returns, sell bitcoin, pay back dollar loan. Your profit is equal to the deflationary increase in bitcoin. Bread and butter arbitrage. Financiers would keep doing this until bitcoin loans are lower interest rate enough that this doesn’t make sense.

[PKop]

How’s that been working out? If only saving was incentivized. Bitcoin true believers have a positive view of increasing savings

[hn_throw_1234]

Pretty well actually. There may be too much debt but debt is clearly a good thing.

Also don't forget if you want to save, to earn interest means you need to lend so at the end of the day you're going to need debtors.

[PKop]

Not with a finite currency. Hodling in your own possession gives you a "return".

And even with some sort of smart contract placing your Bitcoin on deposit (payment channels might achieve this. Committing your Bitcoin to a channel and charging market rate fees), there's no fractional reserve banking so at least credit/money supply swings won't be so drastic and we can avoid the volatility in the business cycle we experience with fiat currencies.