A few more things that many people don’t get:
0. The Bitcoin supply is still inflating. In its earliest years, especially before the first halving, Bitcoin had an extremely high rate of inflation. The inflation rate is now low; and in a few years, it will be negligible. Meanwhile, Bitcoin has already behaved as economically deflationary overall, due to the next item.
I posited in the
"wrong" topic that there will come a time where Bitcoin effectively becomes deflationary. People often accidentally lose access to private keys causing sums of BTC become unspendable. If that rate of loss becomes greater than the rate new BTC enters circulation, then at that point Bitcoin is officially deflationary, but we'll never know for sure when that actually occurs. Is that a fair premise? Unless my reading comprehension is failing me, no one chimed in to provide a counter argument to it in the other topic.
I would add something, it’s not only coin loss that can add to deflation, but also coins that are simply hodld because they’re effectively leaving circulation for an unspecified amount of time.
We probably need 3-4 different metrics to model the supply-side dynamics.
- Total supply (this one is still inflating, but will be completely fixed one day).
- Total „accessible“ supply (this one will be actively deflating trough permanently „lost coins“, but it can never be determined accurately. This would probably drastically slow down over time, the more coins are lost, the bigger the incentive to not lose them, trough coins increasing in value(also requiring demand)).
- “Circulating“ supply (this one can inflate or deflate, depending on current spending behaviors. If more coins are hodld than spent, it decreases. If a lot of long-unspent coins are spent again, it can increase again. The upper bound here is the total accessible supply. I expect the circulating supply to become relatively stable at some far point into the future, when spending/ saving incentives have aligned itself).
- External factors (something like fractional reserving etc).
The inverse also applies: When demand falls, supply-side considerations cannot create value out of thin air. Many altcoins suffer this problem: They
cargo cult Bitcoin’s supply limitations, or even
burn large portions of their supplies* to try to pump the price; then, they wonder why they fail economically. Simple: Nobody wants the coins.
That’s the problem of letting in arbitrary monetary policy, people will try to fill their pockets/ serve themselves/ fiddle with problems without understanding what they’re doing.