The price of investment instruments is determined by supply and demand in the free market. The increase in demand causes the price to increase. An increase in supply leads to a decrease in price. Therefore, investors prefer investment instruments with low supply and high demand.
In this article, I will talk about the inflation rates of cryptocurrencies, especially Bitcoin, Ethereum, Hive, and SPS. I will also analyze the relationship between the inflation rate and price.
Bitcoin
Bitcoin's inflation halves every four years. This event, called halving, leads to a Bitcoin rally every time. You may have heard of the stock-to-flow model if you don't live under a stone. This model, which shows us the importance of inflation, is given below.
The dotted vertical lines on the graph show the halving that happens every four years. In the one-and-a-half-year period following the halving event, the price of Bitcoin rose rapidly. The fourth halving event will take place on April 27, 2024. Thus, the inflation rate of Bitcoin, which is currently 1.7%, will be halved.
Since the inflation rate decreases with each halving, the effect of the next halving may be less. On the other hand, the self-fulfilling prophecy effect can also be in effect. Even in its current form, Bitcoin has lower inflation than significant fiat currencies. This situation makes Bitcoin attractive to investors.
Ethereum
The most attractive coin in terms of inflation dynamics is Ethereum. Ethereum's annualized inflation over the past week is -0.93%. (Source: Ultrasound.money)
When the bull rally begins, we can expect Ethereum's inflation to drop further as the amount of Ethereum burned increases as the use of the Ethereum network increases. The Ethereum network is constantly being developed, making it an attractive investment tool.
Inflation/Price Relation
Research firm Messari calculates the inflation of 258 leading cryptocurrencies. You can find the inflation rates using this link.
Is the price performance of cryptocurrencies with low inflation getting better? As I stated above, Messari calculates the inflation of 258 cryptocurrencies.
The prices of 12 of the 50 cryptocurrencies with the highest inflation have increased in the last 90 days. The rate of coins whose prices have increased is 24%.
There are 75 cryptocurrencies with zero inflation. Most of them have completed their coin emission. The price of 30 of the cryptocurrencies in question has increased. The rate of those whose prices have increased is 40%.
There are 50 cryptocurrencies on the list, with inflation between zero and five (excluding zero). The price of 23 of these cryptocurrencies has increased. The rate of those whose prices have increased is 46%.
While nearly half of the low-inflation cryptocurrencies gained value, this rate remained at 24% in high-inflation coins. As in the case of Bitcoin, low inflation positively affects the price.
On the other hand, the dynamics of this inflation-price relationship may change according to market conditions. I made a similar analysis in 2021 and could not find a significant relationship between inflation and price. High inflation does not produce positive or negative results in bull seasons. In times of low market demand, high inflation negatively affects the price.
Hive and SPS
Messari's list does not include inflation of Hive ecosystem coins/tokens. Fortunately, @dalz regularly calculates the emission statistics of Hive coins/tokens.
Hive's expected inflation this year is 6.5%. Expected inflation is decreasing by about 0.5% each year. Hive's current inflation at the end of March was 5%. By delegating our Hive power to @leo.voter, we can get a 16% annual return in Leo. Therefore, the power of the Hive provides us with actual returns.
SPS inflation is around 30%. When we stake SPS, we get SPS+vouchers+GLX as a reward. SPS stake return is also 30%, similar to SPS inflation. (Source: Splintercards.com)
BNB, Solana, Avalanche, and Polygon
The inflation rates of BNB, Solana, Avalanche, and Polygon are 0%, 5.4%, 20.8%, and 2.1%, respectively. BNB and Polygon stand out for high user adoption and low inflation.
TL;DR
A coin should have a low inflation rate. Especially in times of weak demand, inflation becomes even more critical. Still, of course, some coins are thriving despite having high inflation. However, when other conditions are similar, investing in low-inflation coins is in our best interest.
Thank you for reading.
Cover Image Source: Midjourney App
Posted Using LeoFinance Beta
