RT @BitMEXResearch: @hasufl@ercwl@LeoAW Central banks are creating new reserves to pay people not to work. Those in work delivering & producing food & key supplies will demand higher pay. Deleveraging may also occur, but balance between these forces can't last forever, there will be one winner
RT @Beautyon_: "The response to the virus will mark a significant economic regime change, to central bank funded fiscal expansion. Eventually, there will be one clear winner under this new regime: inflation." https://t.co/fLv6dssBZR
Inflation is an increase in the supply of money, not prices.
Please don't be delusional people, inflation might occur sometime in the future but right now we are in the most deflationary environment since the great depression. HODL your cash right now, fiat is food and shelter for your families BTC is not.
This isn't a great article at all – it barely justifies its arguments. For example: "People will hoard dollars" implies increased demand for U.S. dollar increasing its net value over time. Inflation decreases time value of a currency as you can't buy as many goods with the same amount. So will they then move to Bitcoin instead of the dollar? What indicates that? Overall, a poorly written article without much explanation.
Maybe you have misunderstood the point.
>Interest rates are already at the lower bound. The lower bound is 0%, since if we go much below this rate, the public will simply hoard physical cash.
Cash continues to be the most sure method of payment and unit of account. If a central bank opt for NIRP, someone's cash is going to be taken **if** it is in a bank. When a person who saves in a bank suddenly has to pay for saving money in there(this is what NIRP means but some banks under NIRP today don't pass these costs to costumers), he's better off having the same money in cash under the mattress. Thus, to avoid costs, the saver is more willing to withdraw.
Should enough money be withdraw from banks, fractional reserve stops working or much better: they have to freeze it before it stops working.
But the government has strong public pressure to alleviate the crisis. The previous way of doing it was handing out money at low interest to banks who lower interest to entrepreneurs and costumers thus consumption is up (actually all fixed income investments are strongly discouraged so banks lend to entrepreneurs/costumers at low interest rates but there isn't anything forcing banks to lower interest rates, it is just what their competition is doing it to get some return thus they come on board). Interest have to be ever lower at each crisis but when it reaches zero central banks have got few options to pump the economy up again. Then it reaches the point of the article that the government will have to spend money outright, and more than they already spend, to alleviate any current or future crisis because lowering interests(this is monetary policy along with compulsory deposits PBoC seems to hate and all of that) isn't available. Populist pressure to increase government spending may then result in inflation.
>For example: "People will hoard dollars" implies increased demand for U.S. dollar increasing its net value over time.
It continues to be a good method of payment and people will hoard whatever devalues less if nothing more worthy of being stored isn't available. It is also stupidly widely accessible to protect oneself against crisis. Reality isn't all that black and white.
Price deflation in a crisis is always very temporarily. Monetary inflation has been rising and will continue to rise regardless of the change in price levels. Eventually, the monetary inflation will catch up to us in the form of an equal level of price inflation to how much monetary inflation there has been.
A move to bitcoin is pretty uncertain, but a rise in bitcoin price is much less uncertain.
OP is written by idiots. We're staring down the gun of a global depression, with the biggest market and consumer collapses in living memory and a pandemic that could last for years on top of what it's already done. Inflation is probably the single least likely outcome! Talking about inflation now is as idiotic and inane as that Federal Reserve board member in 2008 who was against QE because some ice cream had gone up in price or something; and everyone post-2008 who bet on inflation or hyperinflation lost their shirts.
How do you bet on hyperinflation? The monetary base was basically hyperinflated, up to a rate of 30% per year for years [from 2009 to 2015](https://fred.stlouisfed.org/series/BOGMBASE). The only thing that counteracted that was a [decreasing velocity of money](https://fred.stlouisfed.org/series/M2V). But that money isn't gone. At some point, velocity of money will rise again and cause massive inflation. Yes inflation is unlikely in the next year. But it is very likely in 4 years.
> How do you bet on hyperinflation?
Tons of ways. Buying gold, equities, commodities; shorting bonds of every kind, Treasuries, etc. Lots of people tried to bet on hyperinflation, and they failed, and further, they missed out on the biggest equity gains in decades.
> Lots of people tried to bet on hyperinflation, and they failed, and further, they missed out on the biggest equity gains in decades.
Uh.. so you're saying that people who bet on hyperinflation by buying equities missed out on the biggest equity gains in decades? Try rereading what you wrote.
Because a whole bunch of USD was functionally created everything else relative to USD will increase in value. This was done by the Federal reserve to keep stocks and other assets from losing value even faster. If everything else loses value relative to bitcoin then to people holding Bitcoin it will be a relative increase in BTC value.
Edit: I think this is what's going on, but if someone wants to correct me that would be appreciated.
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Smallest fraction of a bitcoin; 1/100,000,000th of a bitcoin
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If they hand out money to the poor inflation will rise. We didn’t see inflation from 08 because all that money went to the 1% and Into 200M$ NY pent houses. If you want proof google “US velocity of money graph”. It’s amazing.
Why? Bitcoin's inflation rate is about to get halved. It should benefit both really. Maybe gold will get an initial boost because its tradition though. I think once stricter controls, negative interest rates, and haircuts start occurring on bank accounts, BTC's appeal will be more evident.
If people rush to purchase Bitcoin, you are going to see cost push inflation in action via sat fee increases to confirm transactions...the inflation won't be a decrease in value of fiat, but a decrease in spending power of BTC itself as its spending power is directly tied to the ability to transact it...and higher fees reduce that spending power.
People seem to forget that a full block at 100 sats per byte is worth a whole Bitcoin...and rather than shutting down operations miners will be forced to look at fees as a means of staying solvent when operational costs exceed what they can earn from mining alone...every single halving event which occurs pushes the economics of bitcoin to be controlled more by fees than the coinbase...the matter of when this occurs really only comes down to network demand, nominal price in fiat, and the number of halving events which occur...and a lower nominal price pushes Bitcoin more towards falling over the ledge and becoming a fee economy quicker as people are less resistant to paying high fees when the real value lost to fees is lower.
Cost-push inflation: Typically used in industry to discuss cost increases due to an increase of cost in production, whether the increase comes from labor/wage increases or an appreciation of the underlying resource used to produce a good. This can cause the spending power of the dollar to weaken in an industry
Demand-Pull inflation: Price increases caused by a major increase in demand versus the overall supply...that causes the spending power of a dollar to decrease as you now need more to acquire the good/service.
Essentially the cost-push factors of operational costs to run a mining node are tied to the electrical cost and the overall price of BTC. When the fiat price of Bitcoin falls, the operational overhead increases which pushes miners to start raising the fee minimum to make a transaction to cover expenses. Since the 'resource' is the networks functioning itself, this can be considered Cost-Push inflation. Basically any transaction has a sat per byte fee attached, and it increasing decreases the real value of Bitcoin since it is necessary to make a transaction.
I made a bit of a mistake though as the example I gave first was Demand-Pull inflation by opening my thoughts with a discussion on an increase in the demand of Bitcoin, but went on to discuss the operational costs and actual cost-push inflation after the fact which conflated the two.
To make a long story short though: If you have to spend more Bitcoin to have on chain transactions in Bitcoin, the value of Bitcoin decreases, not in terms of fiat, but in terms of Bitcoin pegged to itself...and the two main factors which can lead to an increase in fees are low cash value if utility prices remain stable, and an increase in demand to use the network itself.
Ok, so I think you're saying that as the value of BTC decreases, it compounds the issues because not only is it less valuable in dollars, but its less valuable as a currency because it costs more to make transactions due to miners charging more for txn fees to cover costs.
Still, if the killer app of btc is currently censorship resistance and general authority resistance, then its value may still be realized once governments start policies like haircuts on bank accounts or hyperinflation of fiat. Right?
I still personally think BTC is a great inflation hedge, but Bitcoin's layer 1 is likely to be what people see and think of first when people start flooding to get out of fiat given an event such as central banks collapsing...so pushing for Layer 2 adoption and making it more robust and intuitive for the masses is what I think will make or break Bitcoin long term given such circumstances...and that layer 2 needs to be synonymous with Bitcoin...branding it as the lightning network or some other network isn't going to get people not already in the know to use it...because given the examples I gave, if a bitcoin was worth say 10k of what 10k USD is worth now, then a 100 sat per byte fee is going to have an average transaction cost worth what 2.50 USD is now, which really limits what sort of transactions it can be used for without really getting crushed by fees for small ticket transactions.
But as to what you think I am saying, yeah that is basically the gist...becoming worth less in fiat pushes miners to charge more in transaction fees, which devalues bitcoin pegged to bitcoin...but fees can also increase if people rush to adopt using it sort of like the fee spike that happened in 2016 which would be an example of Demand-Pull inflation.
My other big concern which I discussed more at length last year is what happens once enough halving periods occur that miners earn a lot more from fees than earning bitcoin from the coinbase itself, because then it becomes more of a fee economy where mass usage of the network devalues Bitcoin as the demand pushes fees higher, while not using it causes fees to lower while likely causing a loss of the hashrate...and to me that presents a sort of Mexican Standoff situation; using the network lessens the value of your coins, but not using the network forces hashrate to lower significantly...and if value is priced based on hashrate, then there are no strategies which causes the network to not lose value, you just have to pick which one causes it to lose less value in the long run.
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I'm not sure what the solution would be to the mexican standoff situation, but I agree re: LN and the general UX of the whole system. The end user needs to only see something like "chequing" and "savings", one being a btc layer 1 wallet, and the other being an LN wallet, but both of those ideas being abstracted away. unfortunately it seems like LN is still a real work in progress, and I'm not sure we're going to be anywhere close to it being ready for adoption this halving cycle.
Honestly a robust Layer 2 would probably solve the Mexican Standoff situation somewhat, but it would require layer 2 nodes to periodically settle on chain...The idea is that layer 2 transaction fees would run an inverse peg to on chain fees, so if the on chain fee is high, layer 2 fees would be lower so that there is room for an equilibrium to be met between the two layers to stabilize inflation/deflation rates. Then to ensure the health of Layer 1 you require your layer 2 channels to settle when the mempool is low to ensure blocks stay filled.
But when you say "Everyone" it's more like "everyone" that has researched and understands bitcoin, the tech and all its complexities in depth to be able to not only understand what a "halving" is but also how that would impact the price and so forth. So, really, a pretty small percentage of even those in the bitcoin community.
Yeah, I mean there's still the fact that BTC's appeal is unclear to people right now (censorship resistance), and it's scalability is quite poor for the foreseeable future (LN is still a mess and requires a bunch more tech for good UX). I think this makes it a risky asset in most people's minds. But once the shit truly hits the fan and governments start meddling in an obviously negative way, bitcoin's benefits should be obvious. I just hope we're ready by that point to scale...