The biggest problem I see with deflation is that it becomes rational to avoid actually using the currency. This massively decreases demand.
Not many people are using bitcoin to buy pizza any more, because there's a hope that if they just HODL a bit longer they'll be able to buy lambos with the same amount of bitcoin.
That makes bitcoin less useful as a day-to-day currency. If the entire world economy was based on bitcoin, there would be a deflationary spiral and no clear way to fix it. This would be the mother of all depressions.
Yeah, Bitcoin's falling to Gresham's Law like gold did before it.
If you have two forms of money, one of which is inflationary and one of which is deflationary, it becomes rational to hold the deflationary one and spend the inflationary one. Eventually all transactions happen in the inflationary currency, and people forget that the deflationary one is money at all - it just becomes a collectible.
One of the intriguing possibilities of cryptocurrency to me, though, is the idea that a currency could have its inflation rate algorithmically determined so that all market participants know exactly what it'll be worth in the future, irrespective of the actions of any central bank. Extra points if any new money injected goes to people actually transacting with it rather than people holding it as a store of value.
I've long thought the problem with the Fed isn't that it exists or that it increases the money supply, it's that it injects new money at the top of the economy (banks etc.) and measures its effect at the bottom of the economy (consumer prices). That a.) gives a long time lag between the Fed's actions and their effects, which tends to make them overcorrect and b.) means that all sorts of shenanigans can go on in the meantime.
Other than a non functioning economy where wealthy oligarchs control everything simply for showing up a few years early and taking control of the money supply because they already had surplus capital to either mine or purchase the easily produced Bitcoins in 2009-2016..
Bitcoin has a higher inflation rate than USD.
Bitcoin inflation rate per annum: 3.87%
USD Current inflation rate for the United States is 2.7%.
Early in Bitcoin history, by design Bitcoin went though a period of hyperinflation where Satoshi and a few users acquired most of the coins in circulation.
Aprox 4.11% of Bitcoin users (addresses) control 96.53% of all bitcoins in circulation.
That's a quite simplistic Keynesian view of economics. Economy != money changing hands. Savings are necessary for economic growth as they represent unspent resources in the economy that can be put into long-term projects and investments.
Do the money holders keep their money in their house? Or do they keep it in banks? What the banks do with the money? Nothing? Or lend it to new businesses/invest it?
Not many people are using bitcoin to buy pizza any more, because there's a hope that if they just HODL a bit longer they'll be able to buy lambos with the same amount of bitcoin.
That makes bitcoin less useful as a day-to-day currency. If the entire world economy was based on bitcoin, there would be a deflationary spiral and no clear way to fix it. This would be the mother of all depressions.