《The Bitcoin Standard》2: Is the “Deflationary Trap” a “Lie of the Century”?

On March 24, Strategy (formerly MicroStrategy) made another high-profile move — purchasing 6,911 Bitcoins at an average price of $84,000. This brought the company’s total Bitcoin holdings to over 500,000 coins, with an average acquisition cost of $66,000. At the current market price of approximately $88,000 per Bitcoin, the company is now sitting on an unrealized profit of $22,000 per coin.

It is not hard to see that regardless of the point in time, across the global wave of cryptocurrencies, Bitcoin has always remained the brightest presence. But ever since its creation in 2009, Bitcoin has never been free from controversy. In particular, the field of economics has never ceased to raise questions about its legitimacy. One of the most frequently cited criticisms comes from Nobel laureate economist Paul Krugman.

Krugman once sharply argued that if an economic system were to adopt a Bitcoin standard, the fixed total supply of Bitcoin would inevitably cause a rigid monetary supply, leading to deflation. He warned that such a “deflationary trap” would prompt people to delay consumption, trigger corporate profit declines, unleash waves of layoffs, and eventually plunge the economy into a vicious cycle of recession. I previously conducted an in-depth analysis of this view in my article titled Bitcoin: A Mirror for Ourselves.

Today, the “deflationary trap” has become one of the most commonly used arguments by governments and institutions to resist Bitcoin. But the real question is — does this argument actually hold water? Is deflation truly an unavoidable fate that Bitcoin cannot overcome? Or is it merely a misunderstanding of new things through the lens of old paradigms?

To answer this question, we must first understand:

• What is deflation?
• How does deflation occur?

Only by thoroughly understanding these two questions can we truly judge whether Bitcoin and deflation are mortal enemies — or simply misunderstood companions.

We’ve already said much about Bitcoin; as for “deflation,” it may still feel unfamiliar to some. Fortunately, the book The Bitcoin Standard provides an excellent starting point to fill this gap in our…