why the bubble in cryptocurrencies will never burst thanks to our super complex monetary system?

Dashmaximalist

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Mar 16, 2017
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https://medium.com/@maptags.dev/why...ur-super-complex-monetary-system-fc55ba2d1c0e

what doesn’t kill you makes you stronger … This iconic quote from fight club is so true when it comes to the relationship between cryptocurrencies and governments.

Unless you are living under a rock you probably know what bitcoin is , you also probably know govts world wide hate it. There has never been a financial instrument that have received such a strong regulatory force ,sabotage from govts. Many repressive govts world over have banned bitcoin , many imposed some of the strictest regulatory frameworks over it and they are constantly finding new ways to suppress it further.

Unfortunately it has failed miserably with cryptocurrencies aggregate rising by over 5000% in just 2017 (sounds crazy). Money raised through ICOs ( Initial coin offerings or new crypto tokens) now have overtaken money raised through Venture capital.

There are lot of critics out there , who have tried to bash bitcoin and its crypto ilk time and again. They said govts will crush it , ban it or its simple deflationary economics will destroy it from within ( according to me economists are the most useless creatures on this planet ). These guys never learn , they said bitcoin will crash and burn but it hasnt in fact it just keeps growing stronger and stronger.

Now the real reason why cryptocurrencies will never crash and burn.

from a regulatory standpoint ,every book in the law has already been thrown at bitcoin, strating from KYC to AML to anti-margin trading ( which is regulatory overreach) , neverthless the cryptosphere continues to thrive.

Some folks think govts will ban all crypto exchanges , which in turn will crash and burn bitcoin, but this in fact is a boon to long term traders, once a thriving cash based local exchanges are established all around , most traders don't need to worry about KYC/AML/ Capital gains tax crap and don't have to worry about privacy issues.. so in effect its a short term pain with long term gain for cryptosphere ( which is exactly why smart govts haven’t banned crypto exchanges and they never will).

Now there is another far stronger economic reason why cryptocurrencies will thrive, it's really very simple math. bitcoin/ dash are have scarcity with 21 million coins at the top , whereas there is no limit on amount of money govts can print.

What happens when a unlimited supply of fiat currencies starts chasing limited supply of crypto tokens ?

price of crypto tokens rises

What happens when price of crypto tokens keeps rising for long term?

More and more and people get in , fueling further rise in the price.

What happens when say 5–10% of a country’s population switches to crypto?

here's where the real fun begins.

you see govts have a funny way of creating money, they believe in growing money supply along with a growing economy. but they never try to contract the money supply as believe deflation is destructive to the govt budgets, now this philosophy works as long as underlying economies continue to grow which occasionally fails in places like zimbabwe.

to make it really simple , image this

Think of a country with just 100 people doing 100 transactions every year, govt initially creates 100 dollars ( it also has to pay interest on this 100 dollars ). Now say 10 new people migrated to the country, govt now prints an additional 10 dollars so everyone still has one dollar or so going around.

now imagine 10 people left the country, technically govts should contract the money supply and bring it back to 100 dollars , but they never do this, as contracting money supply creates deflation which collects lower taxes and make its much harder for them the pay the interest on the 100 dollars that govt still needs to pay interest.

So govts always love inflation and hate deflation.

Enter the ( crypto )dragon.

for cryptocurrencies however inflation works in their favour, with rising prices of general stuff prices of cryptos rise too ( as they are limited in supply).

Now imagine the same country with 110 people but 10 of them using only crypto for all their transactions, hence 110 dollars are being used by 100 people. So we have 1.1 dollars for every person using the dollar which is a 10% inflation technically ( which in turn triggers a price rise in crypto tokens).

Remember this however , when the underlying dollar economy contracts ( because of more people turning into crypto) govts are supposed to contract the money supply as well, however they never to do this for the aforementioned reasons.

This means with more and more people turning to crypto not only does the price rise ( because of general buying effect), when 10% or more of country start transacting in cryptocurrencies it creates a inflationary spiral that pushes the prices further.

Now one another strong reason for business turning to crypto is hiding taxes is much easier with crypto ( along with the fact that getting a business bank account involves cumbersome regulations ). So generally speaking if lot of businesses start using cryptocurrencies , tax collection will come down by some degree, unfortunately when taxes come down govt spending usually can't come down along with it ( cutting govt spending is never an easy political move if you know that). For this reason when taxes come down govts usually prints more money which knock knock creates further inflation. if you have read this far, you know that inflation is a dear friend of cryptocurrencies.

To sum it up,

incase we cross the critical barrier of 5% of population using cryptocurrencies we enter the phase of death spiral for fiat currencies.
 

billyjoeallen

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Dec 14, 2017
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I largely agree with this analysis, but there is a caveat;
In microeconomics, individuals wealth is determined by 1. how much they earn 2. how much they spend. 3. How much thay have in savings.
In macroeconomics, an economy's wealth is determined by 1. How productive it is. 2. How much it consumes. 3.How many resources it has

The danger is that states and governments see individuals themselves as resources to be exploited. Every government debt instrument is a promise to tax citizens in the future. Eventually they will come after our crypto because it will be the only thing left to steal. You don't need a quantum computer to hack a private key when you can point a gun at someone and force them to reveal it.

2008 showed us what the central banks and states will do. The next crisis will see more large scale fiat money printing, but interest rates have still not normalized from the last crisis. Interest rates can only go to zero, not negative. lower than zero, depositors will just withdraw their funds, adding to the bank run. The central banksters don't have as much ammo as they did last time, so they will do the only thing they can do to save their politically-connected friends; they will expand central bank balance sheets and buy troubled assets with money they conjure out of thin air.

So yeah. There will likely be a fiat death spiral with crypto coming out on top eventually. What is unknown is whether there will be one main cryptocurrency or many. There is a finite amount of bitcoin. There is a finite amount of dash. There is a potentially infinite amount of cryptocurrency. Which one will be the best store of value? I don't know, but it won't be because of scaling. It will likely be fork-resistance that will be the deciding factor. We actually have four Bitcoins now (BTC, BCH, bitcoin gold and segwit). We have two Etheriums. One Dash!
 
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Dashmaximalist

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Thanks , my analysis needs 5-10% of population to using crypto only and then the real fiat death spiral starts , we dont even need next crisis per se :)

coming to the forks , i think the latest forks are created because of lack of governance in the coins , Dash solves that so i dont think there will be a dash fork atleast not a worth while one :)
 

camosoul

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Sep 19, 2014
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So yeah. There will likely be a fiat death spiral with crypto coming out on top eventually. What is unknown is whether there will be one main cryptocurrency or many. There is a finite amount of bitcoin. There is a finite amount of dash. There is a potentially infinite amount of cryptocurrency. Which one will be the best store of value? I don't know, but it won't be because of scaling. It will likely be fork-resistance that will be the deciding factor. We actually have four Bitcoins now (BTC, BCH, bitcoin gold and segwit). We have two Etheriums. One Dash!
While my head has butted up against this same problem, honestly, it's rather pedestrian.

I can't see the solution to the money printing problem being money printing of a different kind; blockchain photocopying.

If 00000000.00000000 can't absorb the influx, then maybe 0000000000000000.0000000000000000 can?

That's a thing that can be done without blockchain photocopying/money printing.

Just because BCH and BTG have committed the very crime they claim to be preventing, doesn't mean we have to keep doing it...

It's frustrating to watch the crypto industry run up against problems that adults can easily predict and avoid, and the adults be booed into silence because they are a minority... Only to watch the same solutions emerge years later that could have been implemented from day one...

If you really do expect X to happen, then you have to put forth a plan in which X has space to actually happen. This doesn't merely include a proper feature set to facilitate it, but a holding tank big enough to fix it.

If you want to drain the existing fiat pool into a new pool, not only must the hose be suitable for the job, but the new pool has to be big enough.

It's currently not.

Add up all the money in the world.

It doesn't fit into .00000000

Because deflationary, all the money in the world has to fight to the right of the decimal point.

Because deflationary, we can add more zeros AFTER the decimal point without adding false value. Solution, duffs get smaller. Current duffs get more divisible.

Any crypto can do it. Even the shittiest shitcoin is still better than inflatable guvpaper.

But, they chose to photocopy instead, and that tells you something about the people doing it; meet the new boss, just as corrupt as the old boss. The banksters are already here, and they plan to bust crypto the same as fiat. The unholy BTC/BCH/BTG game is all you need to know to see that... Even PIVX was decent enough to start their own chain, even if they gave in to communism...
 
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