Unpopular opinion: Crypto is reducing inflation by "sucking up" a lot of the money that the fed created. Since there is no limit to the amount of crypto currencies that can be created, the currencies can grow in porpotion to the amount of money the fed is injecting into the economy.
@kpeace "sucking up money" makes no sense. When the Fed creates money by printing notes or issuing bonds in return for a bank balance, and then gives that to so someone to pay for something. Then if they trade that bank balance to you in return for crypto, then money doesn't disappear, it just changes which bank account it is in.
@sgryphon Since inflation doesn't kick in unless "real" commodities are purchased with the new money, and block chain is preventing money from going to real commodities, block chain is soaking up the money and preventing inflation.
@kpeace money supply and inflation is a complex topic; from base money (M0) there is a multiplier based on deposits to get money supply (M2), but the velocity of money (how quickly it is spent) is also important.
Money doesn't disappear, but move around, so the same money can be used to purchase 2 times (lower demand) or 20 times (higher demand).
Maybe by "sucking up" you mean that crypt decreases the effective velocity of purchase of real goods. This decrease in velocity could counteract the increase in M0, maybe.
But maybe not; it depends how quickly the original owner was going to spend it; compared to when the former crypto owner spends it. (If it was savings, and the new owner spends it on electricity/hardware, it will increase velocity.)
Comparing to alternative fiat currencies, the relationship between exchange rate and inflation is complex and bidirectional. (And exchanging currency doesn't make it disappear, just moves it to someone else.)
Ppl putting money into blockchain delay that money from continuing to circulate. Unless they were planing to hide the money under their mattresses.
Since those who invest in blockchain have a tendency to use their previous earnings from blockchain for their next investment, this delay is significantץ
As you yourself said, inflation is influenced by the velocity of he money. Any decrease in the velocity would decrease inflation.
@kpeace Scenario 1: Alice mined 1,000 XCOIN; Bob has $1,000 invested in bonds; Bob doesn't like XCOIN; Alice doesn't sell; Alice goes broke. End.
Scenario 2: Bob does want XCOIN; Bob sells his bonds to Carol (who may have had money under the mattress) for $1,000; Bob gives the $1,000 to Alice; Alice pays her electricity bill and buys more hardware; Alice mines more XCOIN, sells them the Dave, and buys even more electricty and hardware.
You are ignoring what happens to the person you buy the crypto from (and give the money too) -- only if they put the money under the mattress, or spend less slowly, does velocity decrease.
Even if you were planning to buy a new car and invest in crypto instead (you buy less goods), the person you buy the crypto from might spend the money anyway (they buy more goods).
There might be more demand for electricity and hardware; and less demand for cars (or whatever you were going to buy), but it won't stop the circulation.
@sgryphon Nothing happens in zero time. So if Bob gives 1000$ to Alice in exchange for blockchain tokens (instead of buying a new xbox) and then Alice pays her electricity bills, it means that instead of
Money -> Goods
we have
Money - > Blockchain -> Goods.
This slows the velocity of money.
If Alice is a blockchain hardcore it would look more like
Money -> Blockchain A -> Blockchain B -> Goods
Which would slow it even further.
You are right that "Soak up" wasn't a correct term. Slow down.
@sgryphon My theory is that a lot of people who are selling block chain tokens tokens from different block chains. So the money doesn't really leave the block chain market