The Effect of supply on the values of Crypto

As per the economies of any goods or services, the supply in the market has a direct impact on its price in the market. The same is true for Cryptocurrencies as well.

Cryptocurrencies And Their Supplies

Bitcoin has a supply of 21 million. It was found that 80% of this total had already been mined till 2017. This makes Bitcoin a fixed supply cryptocurrency.

Those in support of fixed supply believe that this generates digital scarcity. Since lower supply means higher demand, thereby it increases prices. This digital scarcity sets the crypto market apart from the standard global financial system, where a central bank prints more money leading to inflation.

For regular fiat currencies, inflation is something discourages consumers from holding onto their cash because the longer it’s in their wallet, the less purchasing power it has. Thanks to cryptocurrency it may not be the scenario.

Deflation And Its Effects

Deflation correlates to a reduction in the price you pay for goods and services. It is literally the opposite of inflation.

Deflationary assets prompt consumers to spend their money intelligently so they can see their remaining funds appraise in the future.

As output rises, the prices of goods fall, but crypto as a store of value could rise simultaneously. Advocates of deflation explain that this is far more stable than the global economy today.

Fixed Supply assets and their effect on consumer demand

Deflation Death Spiral is the concept that is the biggest effect of fixed supply and deflation. This is where things go to opposite extremes than hyperinflation. Demand declines because fewer people are spending money, while at the same time, prices are also dropping to attract consumers.

This relates to the Austrian School of Economics perspective that people would still need to pay money for essentials. It also believed that, as long as the economy is not built on the basis of debt, the deflation level will stabilize to prevent a death spiral.

If small items like coffee and lunch are bought using crypto, it can help show its utility and boost demand, with more merchants accepting it as a mode of payment.

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