It certainly isn’t inevitable that deflation causes volatility. The cause of Bitcoin volatility is not deflation, it’s caused by speculation under conditions of extreme uncertainty.The uncertainty will be resolved eventually, one way or another.
Right. There seems to be a broad misconception that “The currency will be fixed in [ultimate] supply (physical deflation), therefore it will undergo constant increases in value (value deflation).” But the two are very different: prices change in response to new knowledge, not old knowledge. The implications of future bitcoin supply are already factored into bids.
The belief that “it’s a perfect investment that will trend with general economic growth”? Already priced in.
The benefit of guaranteeing to yourself a known fraction of the eventual money supply? Already priced in.
I can at least imagine that your position is correct. But I still think that attaching a complex set of beliefs regarding the future value of a currency’s individual units generates noise that makes them less useful as units of price value, and really less valuable as a medium of exchange. Added complexity to a given calculation makes it harder to perform, resulting in a relatively slower, clunkier economy, with high probability of buyer’s remorse and so forth arising from miscalculation.
Don’t get me wrong; I am overwhelmingly pro-bitcoin, and see it gaining massive value for reasons I’ve stated (destroying/locking a sum of bitcoins is an extremely efficient way to add recognizable value to another currency), but I have reservations about the specific scenario of it directly filling the niche occupied by cash such as dollars, i.e as a method of. fulfilling long term contractual obligations, pricing goods, and so forth.
I can at least imagine that your position is correct. But I still think that attaching a complex set of beliefs regarding the future value of a currency’s individual units generates noise that makes them less useful as units of price value, and really less valuable as a medium of exchange. Added complexity to a given calculation makes it harder to perform, resulting in a relatively slower, clunkier economy, with high probability of buyer’s remorse and so forth arising from miscalculation.
Are you talking about bitcoin or conventional sovereign currencies? The future supply of bitcoins is much more certain than the typical currency out there because it’s laid down in advance.
Are you talking about bitcoin or conventional sovereign currencies?
Bitcoin. Traditional currencies have the same problem though, in that they tend to have variable, policy-based inflation rates that confuse the markets. I am arguing in favor of a something designed for price stability, enforced by algorithmic means in accordance to demand.
The future supply of bitcoins is much more certain than the typical currency out there because it’s laid down in advance.
Sure, the physical supply is laid out in advance, but the amount available to do transactions with at any given time, or even in the long term, is not. There’s no reliable way to predict who will choose to sit on their coins (possibly even cryptographically putting them in an unspendable stasis for an unknown amount of time) versus spending them on useful trades or engaging in short-term speculation. The market is rendered more stochastic, with more of a butterfly effect, more black swans, and so forth. Each and every transaction is impacted to some degree by this hidden complexity, which negatively impacts the use currency’s use value.
I don’t see how you’ve explained a problem more predominant with or unique to bitcoins. All currencies have the problem that their usage as a currency can shift. There’s no reliable way to predict who will sit on their money rather than spend it. You’re comparing bitcoin to perfection, not to real currencies.
versus spending them on useful trades
The whole point of money is that it has the option value to spend it now or later, so the fact that its option value isn’t being exercise doesn’t mean it’s failing at its purpose; just the opposite, in fact. If all you care about is how often a currency is used, then the optimal currency would be spent the moment it is earned—but that’s scarcely better than barter.
Right. There seems to be a broad misconception that “The currency will be fixed in [ultimate] supply (physical deflation), therefore it will undergo constant increases in value (value deflation).” But the two are very different: prices change in response to new knowledge, not old knowledge. The implications of future bitcoin supply are already factored into bids.
The belief that “it’s a perfect investment that will trend with general economic growth”? Already priced in.
The benefit of guaranteeing to yourself a known fraction of the eventual money supply? Already priced in.
I can at least imagine that your position is correct. But I still think that attaching a complex set of beliefs regarding the future value of a currency’s individual units generates noise that makes them less useful as units of price value, and really less valuable as a medium of exchange. Added complexity to a given calculation makes it harder to perform, resulting in a relatively slower, clunkier economy, with high probability of buyer’s remorse and so forth arising from miscalculation.
Don’t get me wrong; I am overwhelmingly pro-bitcoin, and see it gaining massive value for reasons I’ve stated (destroying/locking a sum of bitcoins is an extremely efficient way to add recognizable value to another currency), but I have reservations about the specific scenario of it directly filling the niche occupied by cash such as dollars, i.e as a method of. fulfilling long term contractual obligations, pricing goods, and so forth.
Are you talking about bitcoin or conventional sovereign currencies? The future supply of bitcoins is much more certain than the typical currency out there because it’s laid down in advance.
Bitcoin. Traditional currencies have the same problem though, in that they tend to have variable, policy-based inflation rates that confuse the markets. I am arguing in favor of a something designed for price stability, enforced by algorithmic means in accordance to demand.
Sure, the physical supply is laid out in advance, but the amount available to do transactions with at any given time, or even in the long term, is not. There’s no reliable way to predict who will choose to sit on their coins (possibly even cryptographically putting them in an unspendable stasis for an unknown amount of time) versus spending them on useful trades or engaging in short-term speculation. The market is rendered more stochastic, with more of a butterfly effect, more black swans, and so forth. Each and every transaction is impacted to some degree by this hidden complexity, which negatively impacts the use currency’s use value.
I don’t see how you’ve explained a problem more predominant with or unique to bitcoins. All currencies have the problem that their usage as a currency can shift. There’s no reliable way to predict who will sit on their money rather than spend it. You’re comparing bitcoin to perfection, not to real currencies.
The whole point of money is that it has the option value to spend it now or later, so the fact that its option value isn’t being exercise doesn’t mean it’s failing at its purpose; just the opposite, in fact. If all you care about is how often a currency is used, then the optimal currency would be spent the moment it is earned—but that’s scarcely better than barter.