Bitcoin Mercantile Exchange (Bitmex) released proprietary research reportedly geared toward their VIPs. Researchers find bitcoin core’s (BTC) deflationary aspects interesting for speculation and as a âpayment system,â but predict it will ultimately not usurp government paper, describing the BTC phenomenon as simply a âuseful niche,â and those who âthink Bitcoin would result in a more prosperous economic systemâ as ânaive.â It’s a strange position to take as a bitcoin exchange.Â
Before Weirdly Turning, Bitmex Praises BTCâs Deflationary Aspects
In conclusion, Bitmex researchers lukewarmly laud bitcoin coreâs merits, arguing how âto many, Bitcoinâs ability to decouple debt from money and thereby result in a deflationary climate without the deflationary debt spiral problem is the point, rather than a bug.â Still,Â Bitcoin Economics â Deflationary Debt Spiral, published recently by the exchange for its VIPs, refers to those who believe bitcoin âwould result in a more prosperous economic systemâ as being ânaive.â Piling on in this manner, they continue, âBitcoin is a new and unique system, which is likely to cause more economic problems, perhaps unexpected or new ones.â
Bitcoin Economics â Deflationary Debt Spiral, is the final in a three part series by the Hong Kong-based Bitcoin Mercantile Exchange (Bitmex). Hot shot, risk enticed futures traders are emboldened by the exchangeâs shorting ability and 100x leveraged contracts. Contracts can only be purchased and settled in bitcoin core (BTC), all without the bother of holding actual coins. Bitcoin cash, bitcoin core, ripple, ether, litecoin, cardano round out possible contract choices.
The report was initially released by a cranky Twitter polemicist who claimed it to be an exclusive get, designed for Bitmexâs VIPs. Days later, the exchange would publish it on their site for all to see. The reportâs focus was to âexamine the deflationary nature of Bitcoin and consider why this deflation may be necessary due to some of Bitcoinâs weaknesses.â
Deflation, as a matter of course, occurs when the value of money increases. In the modern West, at least, this concept has largely been only theoretically known. And then crypto. And then bitcoin. Cursory surveys, and perhaps the readerâs own experience, revealed during 2017 the tension many bitcoiners faced. Used to government tickets eventually and methodically losing value through inflation, a bargain cut between court economists and the first to receive newly printed paper meant every incentive in the average person’s experience pointed to spending. Spend those tickets before they lose more value.
The opposite was evident for most of last year. And this third report by Bitmex takes into consideration long held beliefs about money in this respect. âCritics have argued that history has taught us that a finite monetary supply can be a poor economic policy, resulting in or exacerbating, economic crashes. Either because people are unwilling to spend appreciating money or because the real value of debt increases, resulting in a highly indebted economy. Bitcoin proponents are often called âeconomically naive,â for failing to have learnt these economic lessons of the past,â researchers explain.
Bitmex believes economics, when it comes to bitcoin core, are âfundamentally differentâ from anything preceding. âThere may be unique characteristics about Bitcoin, which make it more suited to a deflationary policy,â they argue. âAlternatively, limitations or weaknesses in Bitcoin could exist, which mean that too much inflation could have negative consequences not applicable to traditional forms of money.âÂ
Deflationâs bad rap in the United States, for example, can be attributed to Irving Fisherâs appraisal of causes and exacerbation of the Great Depression of 1929. And the Bitmex part three meditation presents his arguments well as a chain of consequences where hoarding, or as crypto enthusiasts understand, hodling, only served to severely worsen the problem, according to Fisher. Yet, âmaybe Fisherâs view on inflation was correct for the economy in the 20th century, however by 2150 technology may have fundamentally changed to such an extent that another inflation policy may be more appropriate for society,â they contend.
Turning from mere description, Bitmex researchers hit upon a rather novel concept: bitcoin is not a debt based currency, the kind government paper all over the world is. That is a fundamental difference, and it follows economies would behave differently should something like bitcoin core take hold. In a bitcoin based, deflationary economy, an economic downturnâs âimpact of increases in the real value of debt could be less significant than one may think. This could make the deflationary debt spiral argument less relevant in a Bitcoin based economy,â they note. Â
A Cynical, Dismissive Way to View Bitcoinâs Potential
Given BTCâs deflationary aspects, its being so fundamentally different, and how traditional economic theory is at a loss to grapple with it, Bitmex would seem to hold the coin in high esteem. No, not really. Not at all, in fact. Very near the reportâs end, VIPs are given the candid, unvarnished truth as the exchange sees it. Bitcoin core is a speculative plaything, an interesting project to perhaps make some interim profit if one is positioned well.
âMuch of this discussion focuses on the economics of Bitcoin, assuming Bitcoin is widely adopted, such that the inflationary dynamics have an impact on society,â the report tantelizes. Curiously, the report doesn’t account for BTC’s notorious problems as a functioning currency in terms of block size, mempool congestion, and transaction fees â a debate lived out along side BTC by bitcoin cash (BCH). Researchers do not believe BTC will be widely adopted.Â Â
âIn our view [wide BTC adoption] is an unlikely outcome and perhaps should be considered even more unlikely by Bitcoinâs critics. In our view, Bitcoin may satisfy a useful niche, that of making both censorship resistant and digital payments, but itâs unlikely to become the main currency in the economy. Therefore the debate about Bitcoinâs deflationary nature should be considered as largely irrelevant anyway. Hence, it is therefore somewhat odd that some critics use this as an argument against Bitcoin,â thereby negating almost the entirety of the previous report findings.
The last thought left with readers is a cynical, just-in-case principle: “if one thinks these economic problems associated with deflation have a remote chance of being relevant, like the critics indirectly imply, that would mean Bitcoin has a significant chance of becoming widely adopted and hugely successful. In that case, perhaps the sensible thing to do is buy and ‘HODL’.”
What do you think about Bitmex’s research? Let us know in the comments.Â
Images via the Pixabay, Bitmex.
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