If the maximum remains at BTC 21 million

Bitcoin Questions and AnswersIf the maximum remains at BTC 21 million

Farah A asked 2 months ago

If the maximum remains at BTC 21 million and the price rises due to devaluation, what do you think will happen to the market? Would it not be possible for it to dry up and trade to a minimum as everyone wants to keep his BTC?

1 Answers
Steven Hay answered 2 months ago

Hi Farah,
I think the price of Bitcoin will rise due to deflation and other factors – mostly demand increasing as people realise how useful it is. And yes, as price rises people are incentivized to hold rather than spend. I tend to spend my fiat currency like a drunken sailor but hold my bitcoins like Scrooge McDuck, because I know fiat is losing value constantly due to inflation but that Bitcoin is likely to gain value for the reasons mentioned.
That said, I don’t believe the Bitcoin economy will dry up either. It hasn’t yet and Bitcoin has risen crazily over the years, so why would it in future?
The thing is that Bitcoin is useful, you can use it to buy things which are hard to buy with other forms of money, for one thing. I believe Bitcoin’s usefulness is set to greatly increase when the Lightning Network becomes easy to use, as this opens the door for retail and all kinds of other new markets.
Another reason is that as Bitcoin rises, people can realise their profits (perhaps even tax-free profits) by spending it on things.
There is a common argument trotted out against deflationary money (mostly by the people who gain by the “stealth taxation” effect of inflationary money), which says that if money is deflationary, nobody will spend it but instead hoard (read “save”) it. This is simply not true, as people must of course buy food, healthcare, petrol and all sorts of other necessary things. And people won’t stop buying luxuries either, like alcohol, entertainment, holidays and so on, as people of course want to maintain a certain quality of life.
Although the situation is a bit different with Bitcoin, where like I said it’s better to save Bitcoin and spend fiat. Gresham’s Law has it that with two competing currencies, the bad one will drive the good one out of circulation and into saving. Eventually however, I believe fiat will fall apart as people lose faith in it due to its ever-declining value. History is littered with failed fiat currencies, after all. At that point, the only things left to spend will be crypto and precious metals, so spent they will be.

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