The value of cryptocurrencies is always prone to change. Unless it's tied to a real-world asset, like stablecoins are, it's nearly impossible to maintain values stable over an extended period.
If we have to choose one factor that determines the price of a token, it has to be supply-demand.
It controls everything.
The traditional law of supply and demand is the alpha and omega.
Price manipulation can be done by burning reserves or intentionally raising the supply to either decrease or increase the available supply of the particular coin.
How does burning, however, impact the price of cryptocurrency? Is it sustainable?
The simple answer is - short term.
When a portion of cryptocurrency is removed from circulation and destroyed permanently, it is referred to as "burning coins" or "burning crypto." Usually, to accomplish this, those tokens are sent to a burn address, or wallet address, from which neither the originator nor anyone else can reclaim them.
All of those forgotten private keys are tokens burned!
You have burned the tokens yourself if you ever lose them. However, rather than being unintentional, crypto burning refers to the deliberate removal of the reserve from circulation.
Burning cryptocurrencies aims to lower the total supply to drive up the price of the tokens still in circulation.
The logical question is – can too many tokens be burned?
The simple answer is yes.
If for example there is a constant burning fee on every transaction, people will stop trading, just because tomorrow their tokens will be worth more. Without activity, there is no economy. No crypto project would survive that.
How to implement token burn
Let's first establish certain presumptions that will allow everything to function.
If only a handful of accounts own a sizable portion of a cryptocurrency, then crypto burn has no value.
Crypto burn also has no use, if the token code enables developers to produce additional tokens whenever they want.
Burning cryptocurrency is only advantageous and beneficial for tokens with a high number of holders and a low pre-mined distribution rate.
And of course, for any fast price effect, the amount of burned tokens must be big. So, LUNA, your plan to get back to 1 dollar with the current burn, will take 40 years +.
Even then, there is no guarantee that the price of cryptocurrencies will rise. Only if there is a sufficient amount of demand for that coin at that time would be reducing the number of tokens increase their price.
Burning tokens does not increase their value. Certainly not directly.
The act of burning cryptocurrency has the potential to affect users' and investors' attitudes, either driving prices up or lower.
In conclusion, there is less of a correlation between token burning and price and more of an issue of the utility of the token and investors' plans.
My main point is this. If a project announces a burn mechanism, it is to attract new investors or get more money from the initial investors. The burn doesn’t bring new utility and shouldn’t be praised as much as it is. If the project incorporates a burn, it is because they want more, not for you, but for them.
Anyway – I have nothing against burn. Just don't go all-in because a project announces it.
