When it comes to Bitcoin, there is a big debate raging on whether the cryptocurrency is deflationary or inflationary. On one side of the fence, you have those who believe that Bitcoin is deflationary because there is a limited supply of 21 million BTC that can ever be mined.
Once all 21 million BTC have been mined, no more will ever be created, which means that the only way for someone to get their hands on Bitcoin is to buy it from someone else who already owns some. This limited supply could theoretically drive up demand and price, as people rush to get their hands on Bitcoin before the supply runs out.
On the other side of the fence, you have those who believe that Bitcoin is inflationary because the block reward for miners decreases over time. As more BTC are mined, the block reward halves every 210,000 blocks mined (roughly every 4 years).
This decrease in new BTC being introduced into circulation could theoretically lead to inflation, as there are less new coins being created to meet rising demand.
So, which is it? Is Bitcoin deflationary or inflationary?
The answer may surprise you…
Bitcoin is both deflationary AND inflationary!
How can this be?
Well, it all has to do with how you define each term. If you consider inflation to be an increase in the money supply, then Bitcoin is definitely not inflationary because the money supply is capped at 21 million BTC.
However, if you consider inflation to be an increase in prices, then Bitcoin can be considered inflationary because the price of Bitcoin has been steadily increasing over time (although it has been volatile as well).
Similarly, if you consider deflation to be a decrease in the money supply, then Bitcoin is not deflationary because new BTC are still being created each day as miners are rewarded with block rewards. However, if you consider deflation to be a decrease in prices, then Bitcoin can be considered deflationary because the price of Bitcoin has been known to drop suddenly and sharply (although it has also been known to recover just as quickly).
So there you have it! Both sides of the argument can technically be correct depending on how you define each term.