[adambom]

Bitcoin is a deflationary currency since it's supply is limited.

Doesn't that mean that it's expected to rise in price? This also ends up being the currency's downfall, since there's an incentive to hoard it rather than spend it.

[justinmk]

> deflationary ... there's an incentive to hoard it rather than spend it.

By that logic, everyone would put their dollars into investments that beat inflation (this is a form of saving). Yet they do not. You can hold (hoard?) securities (VBLTX, HTS, JNJ) that beat inflation, yet people spend dollars on depreciating assets (cars, computers). There are other less-risky financial instruments [1] that beat nominal CPI, yet people spend dollars.

> Doesn't that mean that it's expected to rise in price?

Sure, relative to an inflationary currency. But bitcoin fluctuates quite a bit.

By they way, currency is just a good, like anything else. One trades currency for some other good that one values more than the currency [2].

[1] http://www.mint.com/blog/investing/beat-inflation-with-i-bon...

[2] http://en.wikipedia.org/wiki/Time_preference

[lmm]

>You can hold (hoard?) securities (VBLTX, HTS, JNJ) that beat inflation, yet people spend dollars on depreciating assets (cars, computers).

No-one buys a dozen computers and puts them in their basement as savings for retirement. People buy cars and computers to use, not as investments. People with nontrivial quantities of "spare" dollars generally do put them into inflation-beating investments.

[yungchin]

I'm not sure I get that "currency is just a good". If people hoard gold, then the price of gold spikes, and it will be hard to come by gold, but you can probably still buy other things. But if people hoard a currency, to the point where there's not enough freely flowing to pay for stuff, it will affect all kinds of transactions. Doesn't that make it different?

(So I mean, the point of the securities you mention is exactly to hold/hoard them, whereas the point of a currency is not to hold it, but to pass it around, or?)

[mrb]

Critics keep saying that there is no incentive to spend it. But all the numbers indicate that there is increased spending: http://news.ycombinator.com/item?id=5296889 Therefore, no, I do not think it will cause its downfall. I guess people are irrational and still spend bitcoins despite knowing about deflation.

[lmm]

Spending makes sense because the future of bitcoin is uncertain. If you could guarantee that bitcoin wasn't going to crash, hoarding would be a guaranteed winner and people would stop spending (and ironically enough, it then would crash).

[markkat]

Consider that it's not a just a currency; it's also a commodity, and a tool, and possibly a few other things. IMHO it is a mistake to apply traditional notions of currency to bitcoin as it has several other non-traditional characteristics.

[cbr]

    Doesn't that mean that it's expected to rise in price?

No. Because people can buy and sell bitcoins freely then its current price should include peoples expectations about future value.

[ealloc]

Currently bitcoin supply is inflationary because 25 bitcoins are created every 10 minutes, and a similar amount will be generated for decades.

True, this amount is set to decrease to 0 eventually. However, with some planning conceivably this could be changed, as long as the majority of bitcoin users agree it should be changed.

[netcan]

Prices adjust to reflect expectations. Theoretically, if everyone knew with certainty that prices will increase in the future, it would rise now instead. It would rise to reflect the NPV of the future price at any point where its NPV is highest.

The mechanism that would happen through is just as you predict. People would buy & hold bitcoin. Buying & holding is an increase of demand (buying) & a decrease in supply (holding). These both increase prices until the point where buying and holding isn't any more attractive than buying and holding some other asset with a known future value (like government bonds).

In reality that certainty doesn't exist. Current prices of bitcoin a reflection of all sorts of wild guesses about possible future effects that are dependent on all sorts of things.

[pixie_]

Are you saying that inflationary currency is the root cause of an economy geared towards consumption.

[Retric]

It leads to value instability as bubbles form and pop. In theory the total value of bit coins in circulation is not all that important to an individual however price instability is a major downside so deflation does hurt adoption.

[gojomo]

If the designed-in deflation works (and is widely understood), then yes, there's an incentive to hoard.

Whether that means a 'downfall' is far less clear. If Bitcoin just keeps becoming more valuable, serving a role but not circulating as much as other currencies (be they traditional or digital-of-a-post-Bitcoin-design), is that a 'downfall', or just a peculiar kind of success?

Bitcoin is like a new form of monetary/economic matter... some lessons from traditional domains may apply, but others not at all. Casual, confident pronouncements either way are silly.

[thangalin]

http://bitcoin.stackexchange.com/questions/408/does-hoarding...

"The argument that increasing value means people would prefer to hold Bitcoins rather than spend them is specious. While it will make people want to have Bitcoins more, it will also make people want to convince others to give them Bitcoins more so they can have them."

[TylerE]

That....doesn't answer the question at all.

[justinmk]

It is a coy answer to the question. Currency is a good, like anything else. An economic agent (human) trades currency for some other good precisely when that currency becomes less valuable to that individual than the good.

[im3w1l]

>rise in prise >incentive to hoard it >downfall

I don't see how these are compatible. Reminds me of "No one in New York drove. There was too much traffic."

[jasonkolb]

No, because demand is also rising.

[davmre]

Bounded supply + rising demand = rising price, no?