Deflationary cryptocurrencies seem to be everywhere right now. There are over 20 listed on Coingecko which you can easily see thanks to Deflationary Coin Market Cap who have created this useful widget.
The reason people are turning to deflationary crypto is because traditional cryptocurrencies tend to have a large circulating supply which makes it difficult for the price to increase as the market cap would be unrealistically high. There are some exceptions - of course, Bitcoin is king and there are no signs of that changing anytime soon, but if we look at XRP as an example (which has a supply of 99,991,387,607 at the time of writing) we can see the impact this has had on the price, remaining under $0.60 for the past 12 months:
Deflationary cryptocurrencies usually have a much lower initial supply and a percentage of tokens is burned with every transaction. The theory is that less supply will lead to higher demand.
It’s quite a new concept but it does seem to be working. Just take a look at the following graph for Bomb Token (the first deflationary cryptocurrency with an initial supply of 1,000,000 tokens and a 1% burn rate) which went from $0.33 to over $13 after 4 months.
It’s still early days for deflationary cryptocurrencies and, as we all know, anything can happen in the world of crypto. Having said that, the early signs are promising and it will be interesting to see what happens over the course of the next 12 months.
I’d love to hear what you think about deflationary cryptocurrency and where they are heading. Do you have a favourite, is there a market for this type of currency, are you an early adopter?