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The Bitcoin Economy Is Going Through A Massive Bout Of Hyperdeflation That Could Be Devastating

The price of a bitcoin — the uber-buzzy digital currency — is surging.

A few weeks ago it was at $40.

This morning the price of a Bitcoin hit $100.

It’s now over $104, as this pretty chart from Clarkmoody.com shows.

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All of this is stoking an incredible amount of interest in the currency. The media is obsessed. Businessweek recently wondered whether Bitcoin was the last safehaven.

But there’s a downside to this.

The Bitcoin economy is now in a terrible state of hyperdeflation.

You know what Hyperinflation is, it’s when prices surge. Hyperdeflation is when prices violently collapse.

So a few weeks ago, a pizza might have cost you one Bitcoin. Today it might only cost you a fifth of a Bitcoin, which sounds great, but then if you’re looking at the above chart, why would you spend anything?

Why would you buy a pizza (or pot or anything else) when tomorrow your Bitcoin will be worth more? With this kind of chart, you’d be insane to do anything but horde your coins.

So yes, all the hype is great for some folks in the ecosystem, but ultimately there’s a reason that over time, government prefer to see their currency slowly depreciate. A surging currency leads to hoarding which kills real transactions.

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