RE: Will Cryptocurrency Lead To Massive Inflation?
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Here in the U.S. inflation (rise in prices) is higher than it has been in a long, long time. There seems to be plenty of liquidity internally in the U.S. (for example, there is a record number of people paying in cash for new houses and the housing market is through the roof). There are supply problems too exacerbating the problem but there is huge demand. I expect liquidity of USD outside of the U.S. might have something to do with supply chain issues and the lack of U.S. dollars flowing out due to lack of available product (or the ability to get it here). There are a couple of things contributing to that including COVID policies and environmental policies (impacting ports in California significantly) but I think little of it has to do with monetary policy specifically.
Cryptocurrencies compete against one another so if we think of them as a product for a moment instead of just a currency then you have a limited number of dollars (or other fiat currency) chasing a rather large number of cryptos. As long as crypto mostly has to ultimately be traded for fiat to be used (either by the consumer or the person/business accepting it), I don't think it can cause a rise in prices of real goods and services. Within the crypto world itself, the ever increasing availability of new cryptos puts a downward pressure on the price/value of existing ones, but only to the extent that new crypto is ultimately successful. Whether "downward pressure" results in actual reduced value depends on whether and how much current and new investors are putting into crypto as a whole. Arguably, investment in crypto is on an overall rapidly rising trajectory that is nowhere near its peak. But that is speculative on my part. However, if accurate, that will offset any inflationary pressure (a drop in value of crypto relative to other good and services) for some time to come.
That is true although a significant portion of that is overseas money hunting for yield. Also I would say that is a lot of appearance since we know the hunt for yield is taking place. Money is flowing out of a lot of traditional realms such as fixed income seeking a better return. A case could be made that both equities and real estate benefit from this to some degree.
This is quite a presumption. It might be true but I think it very questionable that will remain the case. After all, while it is slow, we are starting to see more acceptance of crypto as payments. This is a trend that I believe will continue. Will it get to the point where it rivals the purchasing made in fiat currencies for real world goods and services? Maybe not.
However, what is to say that is the only realm affected. What about the payment on our Netflix or Pandora accounts, which operate in the digital? Price increases there due to the accepting of crypto payments (if they ever do) is very real to people.
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Actually I am currently looking into ( https://www.bitrefill.com/buy/?code=tll33sj6 ) where you can buy netflix and disney+ refill cards with crypto.
Maybe someday my hive snowball will grow enough to pay those monthly bills for me leaving more fiat money to buy more crypto to grow my snowball bigger and well ad infinate.
That's why I said "As long as...". I don't know that it will always be true but it is true right now and seems likely to be true for some time to come.
If Netflix were to start taking crypto as payment, then I assume they would do some kind of real-time conversion to USD for pricing. The USD and other big fiat currencies have their flaws but they are generally relatively stable. For a business to figure out how to price stuff in a dozen different cryptos, usd and whatever else is kind of impractical, especially with the volatility of crypto. The best they can really do is convert it to USD or something else that is stable for real-time pricing. Besides, they still have to pay their taxes in government fiat (at least for now). In other words, while they may accept crypto as payment, pricing is really still in dollars...you have to give them $20 worth of bitcoin/month (or whatever), not a constant 200 satoshis/month (or whatever).
If that is in fact what they do, then I think all the reasoning above still holds true. If they had been accepting bitcoin for the past 5 years then presumably the price in bitcoin would have actually seen a significant decline, not rise, despite all the crypto inflation (increase in supply) in general. Even Bitcoin itself is inflationary until the last one is mined. It's just that for the time being, demand is outpacing supply in the crypto world so value overall keeps rising over the long run. That can't be the case forever but if you can accurately predict when it stops being the case then you could probably make billions pretty easily.
What we have seen thus far, at least using the major cryptos like bitcoin, litecoin and ethereum as examples, is massive deflation (when using the typical pricing definition anyway). The same amount of any of those today can buy a lot more that it could a few years ago.