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Re:Bitcoin exchange rate reached $100 USD per BTC by stouset on Monday April 01, 2013 @06:33PM (#5476369)
Because the money supply of BTC is fixed, BTC are effectively proxies for the value of the entire economy that they're a part of. When the economy grows by 5%, so does the value of your BTC. It's at the absolute optimimum point of the risk/reward curve: you could hypothetically invest in a way that performs better than the average, but when factoring in the risk, your expected value is slightly worse than if you'd simply held on to your money.

With USD, you know the value of your currency will drop due to inflation. In order to keep up with inflation, you have to put your money in an investment vehicle that stands in as a proxy for the overall economy. Hypothetically, you could buy a perfectly proportional amount of every single listed stock, every bond, piece of real estate, and so on (this is what index funds attempt to approximate).

In the latter example, you also have managed to convert your currency into an ideal proxy for the entire economy. Any attempt to pick winners or losers will, statistically, give you slightly worse results on average than had you simply tracked the market as a whole.

Both examples are similar, except in the latter example, you've actually put your money back into the economy: a company issued the stock in order to raise the capital to expand and grow. In the former, your money is essentially removed from the overall money supply. It is available to no-one, and causes further deflation. The more money you hoard, the less money available for financial transactions. The less money available for transactions, the more valuable each unit of currency becomes.

Re:Bitcoin exchange rate reached $100 USD per BTC by reedlaw on Monday April 01, 2013 @07:42PM (#5476695)
So Keynesian economics forces everyone to invest in order to avoid the inflation tax while Austrian economics encourages saving allowing savers to reap the benefits of deflation. Both serve as proxies for the economy, so tell me again the downside of saving and prices going down over time?
Re:Bitcoin exchange rate reached $100 USD per BTC by zanny on Monday April 01, 2013 @08:48PM (#5476995)
Money you are saving that isn't being used for monetary exchange is effectively dead weight in an economy. Due to modern inflation rates, nobody really "saves" in any modern economy by just hoarding fiat currency - and because of this, the vast majority of the monetary supply is being used for exchange and commerce, and you get peak utility of the currency that way.

If you sit on money you get from the economy, you are taking it out of the exchange system as long as you don't spend it, which slows exchange.

Re:Bitcoin exchange rate reached $100 USD per BTC by dreamdu5t on Tuesday April 02, 2013 @01:08AM (#5477796)
That money sits... forever? Prices don't respond to money being removed?

Savings would still be invested with a fixed money supply, because investment provides a return whether nominal prices are falling or rising.

Sound investments will account for either inflationary or deflationary trends, just as they do now.

Re:Bitcoin exchange rate reached $100 USD per BTC by stouset on Thursday April 04, 2013 @04:19PM (#5495038)
Savings would be invested significantly less with a fixed money supply, because every possible alternative investment is statistically guaranteed to have a lower expected value than simply holding onto your money. Obviously, there are still going to be people who attempt to beat the market. But it will happen significantly less often since the "default" of holding onto your money is both the safest possible investment and the most optimal.

This is clearly the case when nominal prices are falling. But when prices are rising, the reason they are rising is a contraction of the economy… and again, your money is still best left alone. Because while your investments might pay off when the economy rebounds, you'd still be statistically better off with your money sitting under the digital equivalent of your mattress; when the economy rebounds, prices will fall again, and your untouched money will be worth more in direct proportion to how much the economy has rebounded.