[algo646464]

A simple argument is as follows.

Without inflation, i.e. fixed money supply, it would be impossible for a majority of loans to be repaid with interest, or give a positive return to investments. Note that this fact is independent of how well the borrower or business performs. (This is like a zero-sum game).

So, it would be irrational for investors or lenders to part with their deflationary money, as the net profit is always zero (or negative because of other costs).

I am very interested to know if there is a way around this problem.

[theseatoms]

A deflationary currency regime would raises the bar for both investment and consumption. Investors would be choosier about speculative opportunities because the yield on the risk-free asset would be much, much higher. Consumers would still buy essentials, but they'd be extremely incentivized to hold currency rather than spend it.

Regardless of whether or not a deflationary end-state is better or worse, it seems non-controversial that the transition from our current situation to a deflationary one would be absolutely brutal. We're talking about turning the global economy on it's head.

[algo646464]

> Investors would be choosier about speculative opportunities because the yield on the risk-free asset would be much, much higher.

It won't help how choosy investors are, or how well the economy performs. The money supply is fixed. So for someone to make 120 bitcoins from an investment of 100 bitcoins, someone else has to lose 20 bitcoins, which would be other investors, or the public (workers / consumers).

[TomMarius]

Or Bitcoin grows its value.

[simias]

Bitcoin growing its value (deflating) is precisely the problem because then you have no reason to take the risk to invest in the first place since you'll reap the benefits by merely doing nothing and holding your coins that keep getting more valuable.

[TomMarius]

At the same time, it allows you to put brakes on your investment ("lose only up to the deflation!") and invest more. And since your other savings are growing in value as well, you are able to invest more and into more risky projects.

[mkirklions]

>the transition from our current situation to a deflationary one would be absolutely brutal.

We currently have many currencies, if Bitcoin is so absurdly better, then maybe there would be a transition. Otherwise I'm sure many currencies will be used based on the application.

[mkirklions]

Bitcoin wouldnt be the currency for loans.

Bitcoin seems to be best for hording and spending. It holds value and can be transferred easy and cheap.

You can still have companies using currencies that incentivise loan/investing. Bitcoin currently exists and the loans keep being written.

I think as bitcoin grows its going to become big and boring. No 10x gains, not even 2x gains, like 10% swings over the course of a year. It wont be fun, it will be a store of value if you dont trust fiat. Right now I think its crazy undervalued which is causing the explosion of crypto. As BTC gets bigger, investment will start to look better as it provides better returns.

[astrodust]

> As BTC gets bigger...

It can't get any bigger, the transaction limits, the "halvings", the liquidity issues after over a decade of operation, so I guess that experiment has run its course.

[kolinko]

That's the theory. But the practice has shown that people who have Bitcoin spend it both on their living expenses, and on investments.

Ergo, there must be a hole in your theory somewhere.

[s73v3r_]

Has it? I seriously doubt this.

[PKop]

A solution I've heard to this problem is selling equity instead of debt.