What is a Deflationary Currency and Its Effect on Price
The one and most popular question we always get asked: Is crypto a good store of value?
To answer this question, you need to understand how the crypto world operates from the fiat world. The global economy is indeed an inflation-based model, where the amount of printed money is intentionally increased every year to make it decrease in value. Therefore, people are more incentivized to spend it now than save it for later, contributing to a spending economy with free-flowing cash.
But when it comes to crypto, deflation is all that matters.
In the crypto space, people are encouraged to #hodl – the longer you hodl your coin, the higher the coin’s value will gain. Some criticize that this model makes no one want to actually spend their assets, but knowing that your Bitcoin could worth way more tomorrow than today, who would want to splash it now?
In general, crypto is a kind of deflationary currency and you may expect it to only increase in value in the long term as the supplies of most cryptos are fixed. Take Bitcoin for example, the mechanism behind the coin is that it goes through halving every 210,000 blocks, about 4 years on average. Halving is at the core of the crypto deflation-based model as it ensures coins are issued at a steady pace while following a predictable decaying rate with no infinite supply – and that’s what distinguishes crypto from fiat.
In general, historical data shows that Bitcoin prices tend to jump around halving times. According to the Law of Demand, even if the demand for Bitcoin doesn’t increase (which is impossible, in Bitcoin’s case), the price will inevitably go up as the supply continues to decrease.
Apart from halving, coin burning is another unique concept to the crypto market and a popular strategy for projects down the road. OKB, which is issued by OK Blockchain Foundation and adopted by OKX as its utility token, adopts a periodic coin burning mechanism “OKB Buy-back and Burn Scheme” to add value for its holders. Coin burning is designed to reduce the total supply in circulation, as the coin is intentionally destroyed by sending it to a black hole address. Not only does it stabilize the valuation of the token, but the scarcity created also increases traders’ demand for the coin when there is a less amount of it available to satisfy everyone’s needs.
Can you feel the burn?
Following the launch of the much anticipated OKChain testnet on Feb 10, 2020, the OK Blockchain Foundation also announced to burn the 700 million unissued OKB and promised not to issue any additional OKB tokens. Since then, OKB has entered an absolute deflation. The market was in awe of the move, and OKB price rocketed immediately with 46% rise in just 24 hours’ time on Feb 11, then reaching its all-time high at $7.51 on Feb 19. Eyeing the opportunity, Huobi, ZB exchange, and FCoin hastily followed to announce to burn the tokens held by their teams as well.
On Feb 29, 2020, OKB completed the 7th OKB buy-back and burn, the amount of OKB bought back and burned between Dec 1, 2019 and Feb 29, 2020 was 3,183,344.61 OKB, equivalent to $17,500,000 US dollars. Currently, there are 282,838,290.94 OKB in circulation and OKB now ranks among the top 10 cryptocurrencies by market capitalization globally, offering over dozens of use cases by partnering with 35 external businesses. The token is listed on 8 major C2C markets worldwide and a dozen of mainstream exchanges with over 40 major asset trading pairs available.
Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.
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