The argument simply is that exchange should be frictionless and deflationary currency will slow the velocity of money. I guess you agree this will lead to reduced prosperity and economic activity, though you call it frivolous purchases. Your comment about preferences doesn’t play into it; this is about mechanics of exchange, and a precious asset is an inefficient medium for commerce which would lead to reduced economic activity because not only do you have to factor in the opportunity cost of buying a good or buying some other good (sneakers or s&p), now you also have hodling, zero economic activity, as a 3rd option with its own expected return and opportunity cost to forgo. When I buy sneakers, the s&p 500, or btc, my dollars don’t disappear. A counterparty receives them and they stay in the economy. If you pay me in btc and I just hold it, then that money effectively does disappear from the economy.
And I’m not even mentioning all the macro issues of not being able to provide liquidity in the form of new capital in times of crisis.
I agree that it will reduce the velocity of money and maybe “GDP”. But not prosperity, individuals being able to save wealth into the future is a better life outcome than more goods changing hands.
> and a precious asset is an inefficient medium for commerce
You are conflating liquidity with deflation. To be a currency it has to be liquid, we agree. We also agree btc is not as liquid as cash. But deflation or stability is orthogonal from liquidity.
> now you also have hodling, zero economic activity,
Already addressed. People want money to buy goods.
> my dollars don’t disappear.
The value isn’t lost in the exchange but it’s lost everyday due to inflation.
And by “lost” I mean transferred to government projects.
> that money effectively does disappear from the economy.
No it merely is saved for a future consumption date. If we average consumption needs of participants in the economy there is no reason to expect a monotonic hoarding effect. That would mean consumers are not satisfying their desires for goods.
Here is one last framing. The economy is not money, it’s goods and services. Money is just a tool for claiming them. So what does an inflationary currency do to help the economy? Does it cause more people to get out of bed and create new goods and services? No. It just transfers claims to resources to someone else.
> You are conflating liquidity with deflation. To be a currency it has to be liquid, we agree. We also agree btc is not as liquid as cash. But deflation or stability is orthogonal from liquidity.
I’m not; you have a limited view of what inefficiency means. The currency can be liquid and still inefficient for exchange due to other kinds of overhead such as opportunity cost of spending the currency itself.
The economy is not money but a frictionless (opportunity cost wise NOT liquidity wise as you keep trying to divert to) currency is better for facilitating exchange and access to goods and services.
I think a perfectly stable currency could be OK too but that would require incredible management on the monetary side to maintain that equilibrium. And absent being able to hit that bullseye it’s been proven, as much as things like this can be, that a stable little bit of inflation with a fiat currency is much stabler and leads to more prosperity than a currency bound by finite resources external to the economy.
Isn’t it enough that you can buy gold or whatever or bitcoin with your depreciating dollars? Why the fixation on it being a currency?
Maybe it's improved but when i played with btc and made 3x and freaked out and bought a secondhand pixel with my $800 stake in milliBTC the friction was huge. I paid unpredictable vig getting $ and I had very indirect access to sell price which was being constantly fucked over by whales playing.
A true economy of low friction btc transactions for pizza has never existed at the scale banks do pay wave. Its hypothetical frictionless, not actual. I'm willing to bet even legalised state coins will be tracked, frictive and taxed.
Totally. The practicalities of BTC or any crypto as currency today are also a big problem. On top of the fundamental whyyyy of it all. If you can easily convert to/from USD to crypto or other desired store of value doesn’t that provide the required buffer against inflation? Why imbue the currency itself with value? I know societies used to do it that way but that’s not really an argument for doing so in the present day on its own…
The argument simply is that exchange should be frictionless and deflationary currency will slow the velocity of money. I guess you agree this will lead to reduced prosperity and economic activity, though you call it frivolous purchases. Your comment about preferences doesn’t play into it; this is about mechanics of exchange, and a precious asset is an inefficient medium for commerce which would lead to reduced economic activity because not only do you have to factor in the opportunity cost of buying a good or buying some other good (sneakers or s&p), now you also have hodling, zero economic activity, as a 3rd option with its own expected return and opportunity cost to forgo. When I buy sneakers, the s&p 500, or btc, my dollars don’t disappear. A counterparty receives them and they stay in the economy. If you pay me in btc and I just hold it, then that money effectively does disappear from the economy.
And I’m not even mentioning all the macro issues of not being able to provide liquidity in the form of new capital in times of crisis.