I don’t really get the “deflationary money is bad because people will hold on to it” criticism of #Bitcoin / #cryptocurrency – it’s not like other appreciating assets that you can exchange $USD with (and similarly hoard) don’t exist.
@casualwp It primarily seems to be a criticism used by people who insist that Bitcoin must be used commonly as a medium of exchange or else it has "failed". They pretty much deny that anyone could have a legit alternative use for it (i.e. as a store of value), and if it is being used as such then it is somehow in turn delegitimized. Nonsense from people who just want to hate it.
must be used commonly as a medium of exchange
That’s kind of the point of a currency though, so it’s a reasonable assumption that’s the goal of something that purports to be a crypto-currency. If bitcoin fans called it a crypto-asset or something instead and stopped trying to push it as an alternative to fiat currency, people would probably stop pointing out why it sucks in that role.
The argument is that a deflating currency discourages investment if loans are denominated in it. Only investments that appreciate faster than the currency make financial sense. So the economy suffers because value-generating enterprises can’t get startup capital if the bankers would rather sit on the money than lend it out.
@khird @casualwp Semantics. The point is that the criticisms are pointless, bordering on nonsense. "It sucks in that role" is just your opinion. I find it very easy to use. I accept it as payment for my business services. That not many people use it as such, yet, does not make it not a currency. Our community is still relatively tiny, but that does not make it any less a currency than a tiny country's relative to that of a larger one, say the Belizean dollar compared to the Euro.
I mean, as someone who got into Bitcoin quite early and dreamed of it (or other cryptocurrencies) replacing fiat altogether, I would say that using it commonly as a medium of exchange is pretty important. It’s just that even from that perspective I don’t quite get the argument.
Hmm, the loan denomination perspective makes more sense. That being said, I’m not entirely convinced that
i) interest rates in a free market won’t converge to where people are willing to lend anyway
ii) making a startup do better than deflation when currency is deflationary is significantly harder than making it do better than inflation in the current world.
Or to put it in another way, I don’t see a large difference between deflation and accelerated technology progression/production increases (cf. Defending the Undefendable).
… using it commonly as a medium of exchange is pretty important. It’s just that even from that perspective I don’t quite get the argument.
It’s the same argument, really, because loans are some of the most economically important exchanges in terms of dollar value. Bitcoin might operate in certain niches (and to be fair to @Aurelius_17_6_313, I don’t think it’s “failed” yet - the experiment is ongoing) but the fact that it is deflating is a good reason not to expect it to be useful in the rest of the economy.
I’m not entirely convinced that
i) interest rates in a free market won’t converge to where people are willing to lend anyway
Interest rates converge to where people are willing to lend and borrow. The upper limit for the borrower (appreciation of the business) has to be greater than the lower limit for the lender (appreciation of the currency) for such a point to exist. Very little of the economy is at that point wrt Bitcoin.
ii) making a startup do better than deflation when currency is deflationary is significantly harder than making it do better than inflation in the current world.
These mean slightly different things. “Doing better than inflation” means keeping your real growth above zero; “doing better than deflation” means keeping your denominated growth above zero. The degree to which the one is harder than the other corresponds to the degree to which real growth outstrips denominated growth; i.e. the rate of deflation. Whether that’s “significant” is a judgement call, although with Bitcoin deflation as high as it’s been this winter, I don’t really think it’s reasonable to conclude otherwise.
@casualwp @khird Question: are either of you familiar with the crypto-backed lending platforms that are out there now? This might be a sort of "middle ground" for people in our economic/tax context that is in play here. It is for me, anyway: because of learning and putting into practice "infinite banking" concepts years ago, I pretty much no longer invest in anything I can't collateralize for a private loan. Reason: taking a loan is not a capital gain nor is it income.
@casualwp @khird These kinds of loans also typically lack a set repayment schedule, which is a huge benefit to someone like me, self-employed in a seasonal business.
As such, I very, very rarely "use" crypto directly in direct exchange, but mine is actually active in the day-to-day economy in that I use it to secure USD loans which I then spend/invest in other ways. So by proxy, my hodl is "out there", just without liquidating it.
@khird
This is sort of my point in the original toot – the existence of appreciating assets (like BTC) raises the opportunity cost of lending and thus the lower limit for the lender, but this is regardless of the base currency.
My mind is also unset on whether deflation can raise the upper limit for the borrower, hence the ii) part.
I would say its deflation is an incentive for individuals to hold and (eventually) use it, once it reaches a critical mass and enough convenience. BTW, from a moral PoV I also prefer BTC over an inflationary currency.
Whether this is good for “the economy” is another story, I have to admit.
Certainly. I was mostly wondering about the possibility that deflation also benefits the business via, e.g., lowered denominated costs.
I would say that the recent price increase is basically speculation instead of inherent deflation caused by the limited supply.
(Honestly, as someone who got into Bitcoin quite early, I’m a bit disappointed that the price keeps going up but the adoption still leaves a lot to be desired.)
@Aurelius_17_6_313