When describing the currency itself, bitcoin is strictly not deflationary as the supply of it is never reduced, it's actually inflationary for the next hundred years or so until the full 21 million is mined. It might create a deflationary economy in that everything gets cheaper over time, priced in bitcoin. What is so wrong with that? Why can't you expect to purchase more goods in the future than today with the same amount of bitcoin?
There never has been a fixed supply world reserve asset, even gold has always been inflationary. I think it will usher in a "Golden" age for humanity where goods and services consistently increase in quality and value, while constantly reducing in cost. I'm very excited to step into the bold orange world.
P.S. I'm a bitcoiner not a cryptocurrency advocate.
Imagine an economy with both ultra high interest rates and very high deflation at the same time. Let's say CPI growth somehow falls to - 20% and the Fed decides to hike interest rates to + 20%* what do you think would happen? Well take the Great Depression and multiple it by N (no idea, I'd assume N >= 20 though).
Sound great?
How does close to zero capital investment into the economy sound? No loans, no VCs, no new factories/offices/shops/etc. no new anything... Investing into anything would be both very risky and likely still have a negative return compared to just hoarding money.
> I think it will usher in a "Golden" age
I think it would usher societal collapse and the end of human civilization (I seriously do.. of course I'm close to 100% certain that it can never happen, then again I'm not great at predicting the future).
*I would assume the numbers would be higher with btc.. but whatever
I don't think so. There will definitely be companies and startups that yield better returns than bitcoin. Especially when bitcoin stabilizes at a very high value, holders will start speculating.
> It might create a deflationary economy in that everything gets cheaper over time, priced in bitcoin. What is so wrong with that?
Because then investment ceases to be about trying to capture a share of the growing pie, and more a zero sum game which the small minority of people holding most of the financial wealth have little incentive to participate in, and so the mechanism by which stuff gets cheaper over time, priced in Bitcoin, isn't economic growth but just increasing desperation of people without Bitcoin to obtain it.
So all the worst parts of capitalism and none of the actual good parts, though I appreciate the idea is more appealing to people who imagine themselves as being the minority of idle rich.
For related reasons, the world would not adopt a deflationary currency for very long...
This has little effects. Inflationary systems where promoted by governments so that they can inflate their debt away and print money as needed.
You can have a deflationary system and the effects will be the same. People will always be looking for a stable store of value and a yield with variable risk. Instead of increasing/decreasing the money supply through interest rate, the price of Bitcoin goes up and down.
Solving a stable store of value problem (through Bitcoin, completely decentralized) is a 100bn/1Trillion market. And also will be a legitimate use case for Bitcoin and Cryptocurrencies.
Imagine an economy with both ultra high interest rates and very high deflation at the same time. Let's say CPI growth somehow falls to - 20% and the Fed decides to hike interest rates to + 20%* (and has no way to tweak or stop this policy anymore) what do you think would happen? (hint: the Great Depression would just be viewed as a mild temporary slowdown in relation)
Something like that is really not avoidable if btc replaces $/€/etc.
> debt away and print money as needed.
Which on balance has been a positive development compared to the system that preceded this (permanent boom and bust cycles prior to 1930 accompanied by extreme price swings in either direction)
Look at the 'USD inflation since 1800' chart. Would you really prefer the worth of your saving to swing up and down by 10% or more every few years compared to the relatively stable inflation after 1980s?
You got it wrong. The interest rate is used to manage the supply based on the rate/velocity of the economy. Not the other way around. If people want to build businesses, get married, have kids, build products, buy/sell, speculate, etc... having an interest rate, bitcoin, paper or gold, it simply doesn't matter. Places where the financial system is broken will use alternative means of payments.
Bitcoin is flexible. If there is a certain demand or necessity, people can build on top of it.
> If people want to build businesses, get married, have kids, build products, buy/sell, speculate, etc
Yes. 2-10000x (or whatever, depending on how rich you are) less than they do now. If hoarding money always provides a better return than investing or borrowing it why do anything else besides spending the bare minimum?
> Bitcoin is flexible
How exactly? AFAIK it has close to zero flexibility compared to Fiat money.
I'm sorry but overall I really don't understand what are you trying to say. Supply of money in relation to economic growth matters and it matters a lot. It's not just about 'means of payments' that is the easiest part.
> If there is a certain demand or necessity
Well there is no way to increase the supply of bitcoin? Is there?
There never has been a fixed supply world reserve asset, even gold has always been inflationary. I think it will usher in a "Golden" age for humanity where goods and services consistently increase in quality and value, while constantly reducing in cost. I'm very excited to step into the bold orange world.
P.S. I'm a bitcoiner not a cryptocurrency advocate.