## What is Deflation? Why Should Digital Asset Investors Worry

**Deflation (Deflation)** is not the end of economics. Simply put, it is a situation where the prices of goods and services decrease continuously—opposite to inflation. When deflation occurs, the value of cash increases, allowing the same amount of money to buy more than before.

However, this is not good news for the economy because it indicates that demand for goods and services is shrinking severely.

###Where does deflation come from?

According to the Bank of Thailand, in April 2020, the general Consumer Price Index contracted by **-2.99% (YoY)**—the worst in 10 years and 9 months. Meanwhile, the Producer Price Index (PPI) decreased by **-4.3%**, and construction material costs fell by **-4.0%**.

Why does this happen? Several factors work together:

**Demand Side (Demand Side)**: Consumers have less purchasing power—due to higher debt burdens, reduced income, and increased unemployment. When many people buy less, the money circulating in the economy decreases accordingly.

**Supply Side (Supply Side)**: Advances in technology and increased productivity (productivity) reduce the costs of producing goods and services, leading to lower prices.

For Thailand, additional factors include the continuous decline in oil prices and restrictions on economic activities, which reduce demand domestically and internationally.

###Why does deflation often accompany recession?

When GDP declines for two consecutive quarters, the country enters a recession. These negative figures indicate:

- People's income decreases → less spending
- Businesses see declining sales → lower prices to attract buyers
- Consumers see falling prices and expect them to continue → delay purchases waiting for cheaper prices
- Businesses cut production → layoffs
- Unemployed people → spend even less

This is the "deflationary spiral" or a vicious downward cycle—once in it, escaping becomes nearly impossible.

###Who benefits, who loses?

**Beneficiaries:**
- People with fixed income (fixed salary) → money becomes more valuable
- Creditors → debtors must pay back with more valuable money

**Losers:**
- Entrepreneurs → profits shrink, sales decline
- Shareholders → portfolio value drops
- Debtors → have to pay back more (while income decreases)

###What to invest in during deflation?

In this environment, investment options include:

**1. Cash**: Its value increases, suitable for preservation and waiting for opportunities.

**2. Bonds**: When central banks cut interest rates, the value of existing bonds rises (bond prices move inversely to interest rates).

**3. Stocks of consistently profitable companies**: Invest in companies with essential products like food, beverages, and consumer goods, which people still need to buy even during economic downturns.

**4. Gold**: Prices may fall during deflation, making it a good buy. Gold is a good diversification asset.

**5. Digital assets**: Bitcoin and other digital currencies have deflationary characteristics—limited supply and not dependent on monetary policy. During deflation, when central banks increase money supply (quantitative easing) or cut interest rates, some investors seek "hard assets" like BTC to hedge against currency devaluation.

###How to cope with deflation

**For retail investors:**
- Diversify investments; avoid putting all eggs in one basket (Dollar-cost averaging)
- Study company performance before buying stocks
- Keep some cash to buy at better prices
- Maintain a balanced portfolio

**For governments:**
- Lower interest rates
- Increase money supply by purchasing bonds and other assets
- Reduce taxes to put more money into people's hands
- Boost public investment to create jobs

###Final summary

Deflation may sound like good news (money becomes more valuable), but in reality, it is a symptom of a severely ailing economy. When the money supply and demand for goods decline, the economic cycle slows down almost to a halt.

The key is to plan ahead—understand the nature of deflation and inflation, then adjust your portfolio accordingly. Whether holding cash, investing in bonds, or seeking "hardened" assets like gold and digital currencies, staying alert to economic conditions is the first step toward smart investing.