I now believe Bitcoin is inflationary

Previously, I have argued very often on this sub that Bitcoin is not inflationary, often with people who don't seem to have a very good grasp of economics, but most people don't

The key point of the disagreement is whether or not newly mined bitcoins should be seen as an increase in supply or if the supply remains fixed as coins go from unclaimed to claimed--much like a land grab where the total supply is know to the market.

The idea here is that with the future unclaimed bitcoin's supply known they should be rationally treated as though they already exist by the market and that events like the halvenings should be treated as non-events, because they are known by the market. This argument is eloquently argued by Daniel Krawisz in his article Bitcoin is not inflationary

Although I think Krawisz is one of the few people who has a proper and accurate understanding of monetary economics, my thinking has shifted and I now disagree with him on the topic of Bitcoin's inflation.

Basically, it seems as though markets are so unbelievably ignorant about monetary economics that they cannot see known future events and rationally discount prices of money for those events.

If we look to the historic examples of this, we see some evidence that markets behave blindly when the quantity of money supply is known to be changing in the future until well after those changes have been known and only then do prices start to bend to an economic reality that should have been known long in advance.

• In the 1500s when the amount of gold was known to be going to increase due to massive influx of gold from the new world the price of gold stayed high well past the moment when the gold supply had started increasing and was known to be increasing. Basically, people just continued to act as though the supply of gold was as scarce as it was before until the sticky price of gold fell.

• Similarly in the early 1980s when Paul Volker effectively greatly restricted the supply increase of US dollars, inflation persisted as though there was no change even though this was known to the market that the supply of future dollars would be greatly lower as a result of this change. That is, markets don't seem to rationally price future currency supply very well at all.

• I would argue that bubbles such as the Dutch tulip situation are an example of this as well, as I believe tulips were undergoing monetization in the Dutch economy and failed that test because if the price gets high enough, Tulips become a very soft currency e.g. cheap and easy to create.

• This is also reflected in the first two halvenings, with the price not changing very much until a good 6 months or more after the supply change was introduced, even though these events were known years in advance.

Basically my theory is now that markets do not properly forecast future currency supplies and/or rationally discount their prices to the present--if they did, all fiat should be worth near zero. As part of this theory--which I am not sure is correct, I would expect prices of Bitcoin to increase significantly in value in the time period of 6-18 months after the next halvening as if this event occurred without the market knowing of it in advance.