Skip to main content

More deflation in Bitcoinland

A while back I wrote about bitcoins, the decentralized digital currency, that has a rule based supply creation process, supposedly to avoid inflation. As I noted, in Bitcoinland, a fictional country that uses bitcoins, everything is imported, and, as a result, prices of goods and services in bitcoins are heavily dependent, if you live in the US, on the exchange rate between bitcoins and dollars.

The graph below shows the evolution of the BTC/US$  US$/BTC exchange rate.

As you can see, beyond the hike in the exchange rate back in mid-2011, now again there is a significant depreciation approciation of the value of bitcoins. Since the beginning of the year the BTC/US$ exchange rate has gone from around 13 dollars per bitcoins to slightly more than 26. That is, prices in bitcoins have increased decerased by a hundred percent in less than two months, without a significant change in the supply of bitcoins.

Meanwhile, in spite of all the increase in money supply (dollars that is), prices have been stable (no change) in the last two months of 2012 (last data available here). There is more to deflation or inflation than controlling money supply.

PS: Oops. Yes, as it can be seen in my previous post, I have the exchange rate upside down. Blame it on my Latin American roots, since we quote domestic price of foreign currency. The point remains that there is no significant connection between the supply of currency and the price level. Thanks to f for noticing.

Comments

  1. The chart shows the price in USD for one BTC. So the bitcoin economy has been in deflation since late 2011.

    ReplyDelete
    Replies
    1. Actually you're right. Sorry about it f. However, the main point remains, there is no connection between the price level in bitcoins and the supply of bitcoins.

      Delete

Popular posts from this blog

What is the 'Classical Dichotomy'?

A few brief comments on Brexit and the postmortem of the European Union

Another end of the world is possible
There will be a lot of postmortems for the European Union (EU) after Brexit. Many will suggest that this was a victory against the neoliberal policies of the European Union. See, for example, the first three paragraphs of Paul Mason's column here. And it is true, large contingents of working class people, that have suffered with 'free-market' economics, voted for leaving the union. The union, rightly or wrongly, has been seen as undemocratic and responsible for the economics woes of Europe.

The problem is that while it is true that the EU leaders have been part of the problem and have pursued the neoliberal policies within the framework of the union, sometimes with treaties like the Fiscal Compact, it is far from clear that Brexit and the possible demise of the union, if the fever spreads to France, Germany and other countries with their populations demanding their own referenda, will lead to the abandonment of neoliberal policies. Aust…

A brief note on Venezuela and the turn to the right in Latin America

So besides the coup in Brazil (which was all but confirmed by the last revelations, if you had any doubts), and the electoral victory of Macri in Argentina, the crisis in Venezuela is reaching a critical level, and it would not be surprising if the Maduro administration is recalled, even though right now the referendum is not scheduled yet.

The economy in Venezuela has collapsed (GDP has fallen by about 14% or so in the last two years), inflation has accelerated (to three digit levels; 450% or so according to the IMF), there are shortages of essential goods, recurrent energy blackouts, and all of these aggravated by persistent violence. Contrary to what the press suggests, these events are not new or specific to left of center governments. Similar events occurred in the late 1980s, in the infamous Caracazo, when the fall in oil prices caused an external crisis, inflation, and food shortages, which eventually, after the announcement of a neoliberal economic package that included the i…