Can Bitcoin's Price Ever Be Stable?
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Can Bitcoin's Price Ever Be Stable?
1–10 of 16 posts
Re: Can Bitcoin's Price Ever Be Stable?
#2I'm not sure I buy the premise of this article. The supply of Bitcoin in the market is not directly related to the mining rate (the "constant supply" the author refers to) -- instead, it depends on how many people are looking to trade Bitcoin at any given time.
Monetary policy is a mechanism to control long-term value of currency, for example to limit inflation or maintain a certain exchange rate with a foreign trade partner. It's not intended to (nor is it able to) damp out short-term fluctuations in foreign exchange markets.
Re: Can Bitcoin's Price Ever Be Stable?
#3It's pretty difficult to stabilize a cryptocurrency the same way as regular currencies are, if just because there is no good way of cutting the money supply. This makes trying to stabilize the price to some set of goods very difficult, because no matter what you pick, you'll have to cut supply somehow, and that just won't work without something akin to a central bank.
The internal measures, unfortunately, are very easy to game. Take, for instance, an option that is now being considered among academics for regular currencies: NGDP targetting. It'd be very easy to check the NGDP of a cryptocurrency: It's really just trade volume. So it'd not be difficult to attach a coin's supply increase to the volume. We could pick a currency's codebase and make a competitor that did such targeting withing the day. The problem is that it would not work.
NGDP for a real country is fairly hard to game. It's not as if I can suddenly create real economic activity without major costs to myself, at the very least in taxes and fees. The money is also spread enough that such effort would not really match rewards, even in an NGDP targetting regime. In a cryptocurrency though, it's another matter. Transaction costs are tiny for large transfers, and someone with a large balance would be able to create large volume for pennies. Those that would have an easier time doing this are those with a lot of coin, which are exactly the people that would have a lot more to gain from currency manipulation.
I lack any mathematical proof that a stabilization system that is based on what a user cares about, expected value of the coin in a few months/years, is not possible. However I'd be very surprised if there was a solution that worked in the case that a few actors control a significant percentage of the coin's supply, and as it is, this is a characteristic shared by every major cryptocurrencies today.
What makes things worse is that many cryptocurrency proponents would consider any of this stabilization mechanisms to be undesirable anyway. So even if we found a way, would the many people that believe that devaluation hurts savers be on board? A currency that did manage do behave a lot more like a traditional currency would probably not be what those people want, regardless of what the state of the art in economics believes.
So we are back to Betteridge's law of headlines: Any headline which ends in a question can be answered with the word no.
Re: Can Bitcoin's Price Ever Be Stable?
#4I'm not sure I buy the premise of this article. The supply of Bitcoin in the market is not directly related to the mining rate (the "constant supply" the author refers to) -- instead, it depends on how many people are looking to trade Bitcoin at any given time. Monetary policy is a mechanism to control long-term value of currency, for example to limit inflation or maintain a certain exchange rate with a foreign trade…
To add, what you're touching on in your response is the "Impossible Trinity" of monetary policy[0][1], which states that any two of the following three options are compatible, but it's impossible to have all three at the same time: a fixed exchange rate, free capital movement, and an independent monetary policy. It seems as though at the start Bitcoin picked one (free capital movement) and only recently has realized that it left something on the table. And a very important something, at that.
[0]: http://en.wikipedia.org/wiki/Impossible_trinity
[1]: http://www.nytimes.com/2010/07/11/business/economy/11view.ht...
Re: Can Bitcoin's Price Ever Be Stable?
#5It's pretty difficult to stabilize a cryptocurrency the same way as regular currencies are, if just because there is no good way of cutting the money supply. This makes trying to stabilize the price to some set of goods very difficult, because no matter what you pick, you'll have to cut supply somehow, and that just won't work without something akin to a central bank. The internal measures, unfortunately, are very ea…
Nominal GDP, as the name implies, aims to be a measure of production in an economy. This means that shuffling around assets should not count towards nominal GDP. As no real production is happening through the use of Bitcoin (and there isn't really a Bitcoin economy to speak of in the traditional sense)[0], the majority of Bitcoin transactions are speculative, which means people are just shuffling around assets. Transaction volume is therefore not an accurate measure of nominal GDP for Bitcoin.
[0]: http://computationallyendowed.com/blog/2013/11/27/bitcoin-de...
Re: Can Bitcoin's Price Ever Be Stable?
#6So........how is this not 100% related to trade volume? That is the one and only factor that matters here as far as I am aware.
Re: Can Bitcoin's Price Ever Be Stable?
#7Yes, if stabilizes to $0. With speculation being the main driver behind Bitcoin, it's guaranteed that the price will continue to have big fluctuations.
Re: Can Bitcoin's Price Ever Be Stable?
#8I'm not sure I buy the premise of this article. The supply of Bitcoin in the market is not directly related to the mining rate (the "constant supply" the author refers to) -- instead, it depends on how many people are looking to trade Bitcoin at any given time. Monetary policy is a mechanism to control long-term value of currency, for example to limit inflation or maintain a certain exchange rate with a foreign trade…
To add, what you're touching on in your response is the "Impossible Trinity" of monetary policy[0][1], which states that any two of the following three options are compatible, but it's impossible to have all three at the same time: a fixed exchange rate, free capital movement, and an independent monetary policy. It seems as though at the start Bitcoin picked one (free capital movement) and only recently has realized…
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Re: Can Bitcoin's Price Ever Be Stable?
#9It's pretty difficult to stabilize a cryptocurrency the same way as regular currencies are, if just because there is no good way of cutting the money supply. This makes trying to stabilize the price to some set of goods very difficult, because no matter what you pick, you'll have to cut supply somehow, and that just won't work without something akin to a central bank. The internal measures, unfortunately, are very ea…
Yes, Bitcoin seems to be stuck: true believers won't accept supply variability, but price stabilization (and with it, wider acceptance) is impossible without it. However it seems likely that an alternative could use some kind of internal mechanism that would effectively regulate supply without being "gameable".
Re: Can Bitcoin's Price Ever Be Stable?
#10Meh, its only maybe an issue if you believe the only use for bitcoin is as a currency, I dont.