Economics: If Bitcoin Would Be A Currency Almost Everyone Would Go Bankrupt

(Drivebycuriosity) - Bitcoin gets a lot of attention these day. Its price shot up more than 900% y-o-y (worldcoinindex). The price explosion is the proof that bitcoin is not a currency and cannot be used as money. If bitcoin would be used as money it would have caused the worst deflation in history.

Currencies are used as a means of general payment and calculation basis. Today prices, interest rates & debts are denominated in dollar, euro or other currencies. The bitcoin price explosion means that dollar, euro and everything which is nominated in these currencies lost about 90% calculated in bitcoin.

Here a simple a simple calculation: An average car cost about $30,000. A year ago a bitcoin was about $700 worth, the average car would have cost bitcoin 42. Today bitcoin is worth $7,300 (worldcoinindex). So the car price would have dropped to bitcoin 4, about 90%. And not only cars prices would have imploded - everything would be more than 90% cheaper. Even if producers try to adapt and price their goods in bitcoin they would have problems to follow the meteoric bitcoin ascent. If they hike their prices to slow, they make losses, if they hike too fast (faster than the value of bitcoin) they lose customers. Most producers would go bankrupt.

If someone borrowed bitcoin a year ago - or made a debt calculated in bitcoin - she would experience that her debt multiplied with the factor 10 which would lead to bankruptcy. Most banks also would go bankrupt, because of the insolvency of their lenders.

If producers would hike the prices as fast as the price of bitcoins climbs, then they would rise the demand for bitcoin (to pay for everything). This would accelerate the bitcoin rise further and could cause a deflationary spiral. A growing economy needs a growing money supply to finance a rising amount of goods & services. Otherwise prices would have to fall constantly. But the amount of bitcoin is limited by its constructors (wikipedia). If bitcoin would replace the dollar the US would experience constantly falling prices. Therefore a bitcoin economy would be a deflationary economy.

Even milder price drops caused sharp recessions in the past. During the Great Depression - between 1930–33 - "the rate of deflation was approximately 10 percent/year" (wikipedia). 

Bitcoin is a software application which may have many uses. Being a currency & money doesn`t belong to them.