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Comment by arcticbull | Hacker News Reader

Block reward rate: 6.25BTC. 144 blocks are mined per day. Coins are sold by miners to pay for their power and operating expenses. This means 6.25x144x500000 = $450,000,000 per day is how much new money would need to be brought in to keep the price stable. Per day. That works out to $164,250,000,000 in new money per year to keep the price stable.

The more expensive bitcoin gets, the more new money has to be brought in to prop the price up.

At $500K per coin $164B per year in welfare is extracted, burned up and wasted. That's the only math you need to do, tbh, when estimating future coin value.

This is just pumping by the world's biggest bag holders.

> ...and printing money like a banana republic.

And yet, inflation is likely to achieve an effective rate of 0.44% this year.

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But, this is likely a target for 5-10 years out - when the block reward rate will be 1/2 to 1/4 what it is today.

And, they're expecting significant inflation - not just the higher-than historic inflation that the Fed is now officially pursuing, but even more. So Bitcoins might have a high nominal value - but it wouldn't be as much real (current-day) value as you're implying.

For example, maybe they think Bitcoin will be $500,000/each in 2030, after 2 more block-reward halvings – and a runaway-inflation 10x reduction in the real buying power of the dollar. (That'd be an atypical 10 years historically for USD – you'd have to go back to about 1954 for $10 today to have the rough buying power of just $1 then. But not uncommon across all currencies!)

A constant value doesn't quite hydro-dynamically require the inflows of other expenditures you allege. (Perception & desirability, alone, can make an asset class more $X more valuable one day, without $X actually changing hands.) But let's assume for a moment your model is "close enough".

Then in this proposed interpretation of the Winkelvosses' 2030, (1.5625 bitcoin-per-block * 144 blocks=) 225 new Bitcoin will need to be bought/held at $500K each day: that's $112.5 million in 2030 dollars, not $450 million. But because of the 10x deflator, that's only $11.25 million in current-year (2020) value per day.

Is an $11.25 million inflow-of-value per-day thinkable?

Well, Bitcoin has gone from $0 market-cap to $211 billion (CY) in 4,254 days so far. So it's taken on an average of $49 million (CY) in increased value each day for the last ~11 years. Why wouldn't demand continue, at a lesser rate – especially if Bitcoin does turn out to be an inflation safe-haven, as it was designed to be?

Their timeline is "the next decade" ... by that time, Bitcoin will have proceeded two more halvings, which means the issuance rate will be only 1.5625BTC per block, so only about $40B per year is needed to reach equilibria.

Regarding inflation, the Fed has just confirmed yesterday their intent to increase it, they will for the first time not fight against inflation going more than 2% yearly over a period of time even...

All this money printing will end up in inflation at one point, which is also the only way to ever repay all that debt.

> Regarding inflation, the Fed has just confirmed yesterday their intent to increase it, they will for the first time not fight against inflation going more than 2% yearly over a period of time even...

Their issue right now is they're tracking towards 0.44%, not 2% as they intend. Their goal is to increase inflation towards 2%.

> All this money printing will end up in inflation at one point, which is also the only way to ever repay all that debt.

This is a common misconception among armchair economists (and a great point against Bitcoin, too). The issue we're facing right now is that the velocity of money has been reduced, causing deflationary pressure (not inflation). This is typical in recessionary environments, and not at all desirable. Satoshi's will notwithstanding.

Further, as long as the expansion of the broader economy outpaces the growth in deficit it doesn't actually need to be paid back. Also, more than half of US debt is domestically held.

I believe it is not fair to only take into account consumer price inflation instead of asset price inflation. Asset price inflation in the US & Europe has been massive lately. BTC is obviously an asset and therefore the inflation that is relevant for the future valuation of an asset IMO is asset price inflation

Asset price increase is not inflation, which is literally defined relative to CPI. If we're going to talk about economics we should use broadly accepted definitions yeah?

> BTC is obviously an asset...

Hold on now. Nobody seems to agree on that.

if you look at how expensive gold is you would typically compare it in relation to other assets such as real estate or the S&P 500 and not to CPI. that's at least how I would make up my mind when is a good time to buy sell/gold. Gold/precious metals are an asset class and BTC/crypto-assets are an emerging asset class IMO also I think it is not fair that central banks only focus on CPI and not asset price. for me as a millennial it matters a lot that real estate price in central Europe are today 2x compared to what they were 10 years ago. also rent is mostly not reflected correctly in CPIs

> IMO also I think it is not fair that central banks only focus on CPI and not asset price.

I can't figure out why it's not fair, though. All that matters with asset prices is whether they go up or down, not their absolute value. The whole point of assets is they go up. Your complaint is they, what, went up "too fast" or that you weren't in when they did?

> ...for me as a millennial it matters a lot that real estate price in central Europe are today 2x compared to what they were 10 years ago.

Well, inflation accounts for I suspect a whole lot of that. Inflation since 2010 is just shy of 20% for the USD. I'm unfamiliar with central European pricing so I can't comment on that specifically, however it might surprise you to know that in the US, on an inflation-adjusted dollars per square foot basis, houses cost exactly the same as they did in the 1970s. They're just twice as big now. [1]

> ...also rent is mostly not reflected correctly in CPIs.

In what way?

[1] https://fee.org/articles/new-homes-today-have-twice-the-squa...

"OOH, when included, is typically the biggest component of the CPI. However, many coun-tries exclude OOH from their CPIs on the grounds that it is too difficult to measure. Inparticular, the harmonized index of consumer prices (HICP) in the European Union (EU) cur-rently excludes OOH." [1]

OOH stands for owner-occupied housing. I am aware of the fact that the US accounts far better for housing expenses in its CPI than Eurozone countries do.

[1]https://epub.wu.ac.at/7039/1/WP285.pdf

>Their issue right now is they're tracking towards 0.44%, not 2% as they intend. This is demonstrably false, the real inflation is much higher than 2%: https://chapwoodindex.com/

The block reward halves every ~4 years. If we assume you're correct, it means 6.25 * 144 * $11000 = $9.9 million is currently being brought in every day on average to keep the price where it is now. Again by your logic, 20 years from now after 5 halvings that same $9.9 million would support a price per Bitcoin of $352,000.

The new coins aren't immediately put onto the market. They just show up as extra coins in wallets. The miners may or may not immediately try to cash out. Probably a fair number of them don't, since why else would they be in this game to begin with if they weren't true believers?

The price of bitcoin that is recorded on all the exchanges is merely the spot price. That spot price may or may not try to factor in such details as the total supply of the coins, but it is also likely that a lot of the buyers aren't factoring that in at all. And it is also likely that there isn't much depth to the spot price at any given time, and the bottom could fall out at any point with no warning, like a game of musical chairs, since there is no intrinsic value there except the speculative value.

Mining is a marginal business. The difficulty tends to increase until the bloc reward roughly equals the cost of production.

In a world with 500k Bitcoin the electric bill would be denominated in Bitcoin as well. No "new [fiat] money" would need to come into the market. Mining would be like any other business in the world that has expenses and pays operating expenses.

>And yet, inflation is likely to achieve an effective rate of 0.44% this year.

I don't know how to construct even a vague estimate of coming inflation.

On the one hand, TIPS are paying a real rate of about -0.4% for 30 freaking years. If I'm not completely confused, that's saying people think locking up your money for three decades and getting less than 90% back in constant dollars is a good deal. Which sounds like deflationary expectations.

On the other hand, gold seems to be going up in the same exponential way as Apple stock. Warren Buffett supposedly was buying a gold miner.

On the third hand, the Fed seems to have declared they will stop at nothing to print money as long as unemployment is high. If they want inflation to be at least 2%, surely they can get it there?

not supposedly, already bought

Warrent Buffett already bought a gold miner

It is a very smart move, tbh

If stocks at some point start falling, everyone will rush even more to precious metals

It is true that mining tends to reduce the value of a btc, but the effect is small because most of the btc that will ever be created (mined) have already been created: there are already 18.4m, and there will only ever be 21m.

You aren't taking into account halving...

Oh, that's its own problem. After a few more halvings it won't be worth anyone's time to actually secure the network.

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