WikipediaWe previously speculated there was a major danger in surging Bitcoin prices: it would eventually harm the Bitcoin economy.
That’s because, when a currency goes up, people hoard said currency, and that creates deflation.
And when prices explode upward in a parabolic manner, then that can result in hyperdeflation.
And today we get more evidence, via Forbes’ Andy Greenberg who reports that people who use Bitcoin to buy drugs sit on their Bitcoins and don’t deal in drugs:
One Silk Road buyer and small-time drug dealer with the name Joey Terrifying writes that he used the site to buy a gram of Molly, a form of ecstasy, with the intention of quickly selling it to his own customers. By the time he’d sold it three weeks later, Bitcoin had risen in value so much that it dwarfed his profits from the drug sales. “I would have more money now if I had just done nothing at all,” Terrifying laments.
“Hoarding is the rational response to runaway deflation,” adds one user with the name Astor. “If I spend $100 on drugs now and the price of [Bitcoin] doubles in a week, then I’ve effectively spent $200 on those drugs by next week.”
Bitcoin is currently trading in the high $70s.
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