The fixed amount of bitcoin is one of the main features of cryptocurrency but it does not imply a fixed amount of money. Firms demand money to expand output during economic booms and reduce the cost of capital during a recession. The central bank regulates the money supply to avoid inflationary pressures. Bitcoin aims to undermine traditional fiat money, but at the same time it competes with over 4000 cryptocurrencies of which at least 1385 other cryptocurrencies are easily available and widespread online, all fighting to gain reputation and reach the critical mass necessary to survive (https: //coinmarketcap.com/all/views/all/).
Since the supply of bitcoin does not expand indefinitely, increases in demand for money not met by central banks will push users to replace bitcoin with other cryptocurrencies just as the shortage of coal in the 1800s pushed the developed economies of the time to switch to oil. According to Hotelling's model of non-renewable resources (1931), cryptocurrency substitution will occur well before the last bitcoin is mined. Monetary expansion therefore does not take place with greater quantities of money, but with a greater number of cryptocurrencies used, each with a fixed amount. This will intensify competition (perhaps pushing standards downwards) and cryptocurrencies with low reputations will collapse.
In the struggle for survival, traditional fiat money has the support of the central bank which is often the regulator, supervisor and ultimately the government. With the top 1385 cryptocurrencies capitalizing around $726 billion (https://coinmarketcap.com/), which is slightly less than the dollar supply before the subprime crisis, cryptocurrencies will soon be regulated. Bitcoin represents almost 35% of the total, a dominant share, but not the majority. By using cryptocurrencies as parallel currencies to the official one, central banks lose control of the monetary base. By doing so, countries in extreme difficulty such as Venezuela could gain reputation, but many others such as Thailand, China, Taiwan, India, Germany, Bolivia, Russia have already taken steps to limit or ban the use of bitcoins and the list grows every day . A regulation will introduce traceability, capital controls and taxability eliminating many advantages over traditional currencies.
Furthermore, the fixed money supply is still far from being achieved. The graph below shows that many more bitcoins have been introduced than dollars in recent years. The comparison is with cash in circulation, the closest measure to bitcoin. From 2009 to 2014, bitcoin was largely expansionary, only recently catching up with the dollar's growth rate. But FED policy is getting tighter as bitcoin will continue to expand. The point is that the dollar can adapt to the economy, while the economy must adapt to bitcoin. When he can't do that, he'll get rid of them. The biggest obstacle to using cryptocurrencies as money, however, comes from the users themselves.
Money is an attractive asset because it is safe. Faced with swings of 20% in value, cryptocurrencies are volatile and unstable as speculative investments. Without stability, bitcoin cannot replace fiat money. In conclusion, the advantages of cryptocurrencies over traditional currencies could be much more ephemeral than believed and bitcoin does not seem to be the best cryptocurrency either in terms of security and transparency, or in terms of anonymity and costs. The myth of the fixed money supply falls apart under the test of fact: despite the convergence towards the asymptote, bitcoin is still expanding at a remarkable pace and has been joined by a plethora of new cryptocurrencies that expand the overall money supply. Finally … are we really sure that the bitcoin deflationary regime is better than the dollar inflationary one?
Deflation, the specter of central banks when interest rates were near zero, prompts consumers to postpone purchases, businesses to delay investing, employment to decline, and thus the economy to grow less. Dealing with lower transaction costs is good… as long as there is still the ability and willingness to spend. Beyond the bubble, strong doubts remain about the future of bitcoin and, in part, of the blockchain.
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> Beyond the bubble, strong doubts remain about the future of bitcoin and, in part, of the blockchain.
Bitcoin no, but the blockchain…. typical sentence pronounced by those who have not understood the technology.
> Deflation, the specter of central banks when interest rates were close to zero, prompts consumers to postpone purchases,
If it were true, why is the computer industry so thriving? Who doesn't buy a smartphone because they would pay less for it the following month? And why
> […] have already taken steps to limit or ban the use of bitcoins and the list is getting longer every day. A regulation will introduce traceability, capital controls and taxability eliminating many advantages over traditional currencies.
The point of bitcoin is precisely that it cannot be blocked with a law.
It makes no sense to say that bitcoin competes with 1899 other cryptocurrencies, because none of them offer the same service. And 99% are crypto zombies, with less than 400 daily users