We have often heard the financial terms inflation and deflation. But do we have an understanding of both these terms?
Inflation in simple terms refers to the increase in the price of goods and services. In such cases, https://www.nftrobots.org only increases the cost, and all other factors remain dormant. This includes the monthly salary also.
Deflation refers to a decrease in the supply of products and services. This is due to the limited supply of these products in the marketplace.
Cryptocurrencies have been ruling the market for a while now. Many people are trying their luck with this investment model. Newbies and experienced investors have tried their luck with crypto investments. The total market capitalization of crypts has also increased in the last five years. The pandemic was another luck where people invested their time to learn cryptos. There has been an incredible increase in the total investor and investment. Compared to other investments, cryptos are not flexible. There is price volatility and fluctuation that goes hand in hand with cryptos. Despite this, people continue to invest in cryptos. As per a recent study, there has been an increase in total women investors as well.
How do inflation and deflation affect cryptos? Let us understand!
While the above is from a financial perspective, how does this impact cryptos? This needs a deeper understanding of the crypto industry also. Cryptocurrencies are not traditional financial assets. It is also not used as a regular commodity or medium of exchange. The concept of inflation and deflation affects cryptocurrencies also. Certain currencies have indeed limited supply in the market. A few examples of this are Bitcoin and Ethereum. It is understood that the last Bitcoin will be mined in 2045. This means the price of Bitcoin will continue to increase. The launch price of Bitcoin was $1. Today, the same coin trades at $35k per coin. A 100% increase in price is an understatement.
Deflation on the other hand refers to when supply decreases in the market. It means the product supply is limited or reduced over some time. And the investors are ready to buy this coin.
Understanding inflation in cryptocurrencies
An inflation concept in crypto refers to when there is an unlimited supply of crypto in the market. The total quantity or market supply of each coin continues to increase. This increase may be due to new coins mined regularly. Another possibility is the staking activity on the crypto platform. The supply of tokens will cause a direct link to its price. With more coins available in the market, the demand is lesser. It will in turn affect the price. The value keeps decreasing. An investor needs to keep investing in this coin to achieve a breakthrough.
Dogecoin, for example, is inflationary crypto. In 2014, Dogecoin worth 100 billion was abolished in the marketplace. This was a masterstroke to ensure there is an unlimited supply of this token. Another example of this token is Bitcoin. The supply of Bitcoin mining will end in another ten years. This also means the prices will continue to rise.
Understanding deflation in cryptocurrencies
For deflationary cryptos, the supply of these tokens will decrease in due course of time. It means there will be an increase in market price during the period. And each project implements its measures to control deflation. One such measure or classic example here is Binance Coins. BNB ensures that they burn down cryptos once every quarter. This way the supply is under control. But, certain crypto companies adopt alternative measures. These companies work like central banks or traditional banking systems. It deploys its efforts to control inflation and deflation of prices. An example of this logic is Tether mints and burns UST. This way the price of the coin continues to remain at $1 only. It also continues to hold the position of the stable coin through this.
Are inflation and deflation bad for the crypto economy?
As per economists, inflation and deflation is not a bad thing. Inflation can boost the economy largely. If inflation goes beyond control then it is also known as hyperinflation. Higher inflation can also result in your savings running out. Investors could feel the pain of buying very little for a higher amount.
