This has totally changed my view of the Weimar period. It seemed so crazy. Why would people act like this, on and on and on...?
I didn't realize that nothing has changed, since then. Kind of a crazy thought, but less crazy, once you realize that the ancient Greeks knew about monetary inflation, but it still kept happening over and over.
And it will keep happening. But there is also the deflation spiral. Which is worse, i don't know...
It's not worse. Things getting cheaper is a blessing, not a curse.
No you didn't understand. Let's say bitcoin got itself in a deflation spiral for example. It's price can go to zero...
Deflation means the amount of money decreases, not the price.
Can be both actually
If the Bitcoin supply goes down, the price only goes down, if demand goes down faster than supply.
Since the amount of bitcoin is standsrd, only the demand counts
Bitcoin will eventually turn deflationary.
But in bitcoin case its the price
Bitcoin is the price, yes, but only insofar as 1btc = 1btc.
The fiat price is not a true metric. In fiat terms, a deflationary asset will naturally go up in price (in comparison to the reference fiat ccy)
1 Bitcoin will always be priced at 1 Bitcoin because of the fixed supply. It's the hardest form of money we have today, harder than gold. It's rock solid bedrock because it's native pricing doesn't change. 1 btc = 1 btc. All other currencies will eventually be measured against it.
In finance, the root price of a currency is determined by its price measured against another currency, the reference currency. (ex. GBP or EURO measured against USD). But how do you price a reference currency then? The pricing of a root reference currency is contingent upon its global supply.
In the legacy world, we r trained to recognize a fiat currency with a randomly variable circulating supply (usd) as the reference currency. When it comes to reference pricing, global supply is to ref price what a tape measure is to construction.
As a measuring tool, is it better to have one that stays the same length always (1 inch is always 1 inch) or better to have one that randomly gets longer at the whim of the government (1 inch turns into a real 2 inches)?
But if we inflate our measuring sticks, now all your shoe sizes are doubled! Wow sounds amazing your shoes are so much bigger now! What big feet you have! Our assets are growing so fast! No... your shoes always physically stay the same size, it's your measuring tool that's changing, not your assets.
The bitcoin yardstick always stays the same length. 1 btc = 1 btc.
And the amazing thing is, it doesn't matter that bitcoin is deflationary (or more specifically the "deflationary spiral" doesn't actually matter) because Bitcoins value is decoupled from it's quantity unlike all other currencies. We all know, less Bitcoin = higher price. But what price? Fiat price. Your 1 Bitcoin is always worth 1 Bitcoin no matter how many bitcoins are out there. And since Bitcoin is infinitely divisible, when it comes to a deflationary spiral, ot really doesn't matter to Bitcoins what the fiat price is.
A deflationary spiral is only bad for fiat.
Not only bad for fiat. At the end of the day if you can't buy anything with bitcoin for example, then it has no value for you, then it can be spiraled to zero.
Well, that's the same with any commodity. If silver or oil loses all value to anyone, including as a currency, then it can't be used in trade and completely loses its monetary function.
Bitcoin is actually sort of protected by that, as its value as a currency is not dependent upon some secondary function.
It depends on the bitcoin infrastructure which is not user friendly, but maybe people will simply prefere something else and bitcoin becomes irrelevant, who knows 🤷. For the moment so far so good.
