This can make the 'rate of deflation' that occurs worse:
* https://en.bitcoin.it/wiki/Deflationary_spiral
* https://isps.yale.edu/news/blog/2014/06/the-perils-of-bitcoi...
* https://crypto.bi/deflationary/
† I am aware of satoshis.
Considering this, while it is true that all this makes deflation worse, I’d assume most bitcoin hodlers would not mind this.
Look at it this way. If your money (in money form) is worth less tomorrow than today, you are incentivised to spend it, thus fueling economic activity of all sorts (from going out and buying a drink to buying a car, traveling, investing). If your money is worth more tomorrow, then you are incentivised to tighten your belt and not spend for as long as you can. At scale, this negatively affects production, economic mobility, and so forth; the rich get richer and hoard the money. I do not believe any of today’s economies can be healthy and competitive (or even functional) with a deflationary currency.
I disagree that it is the cause.
The mechanism does not distinguish between “bad economic activity” and “good economic activity”. I.e., the same mechanism applies to positive progress (carbon dioxide sequestration, more expensive technology and techniques reducing environmental impact, etc.), it just requires proper incentive alignment and accounting for bad faith actors via regulation.
A deflationary system with limited supply makes kings and ultimately defeats itself, as your money is decreasingly evidence of your effort and work and increasingly evidence of you having held to it for a while. (It is also a quality of the current system, but less so, and it should be even less so, not more so.)