Why would you invest in cryptocurrencies that don’t have a fixed supply?

2 Votes
2Answers
143Views
7 months ago

One of the main attractions for investing in some cryptocurrencies like Bitcoin is their fixed supply, as this scarcity can potentially lead to an increase in value over time. However, there are digital currencies without a capped supply, and I’m trying to understand the reasoning for choosing to invest in them. Without a supply limit, it seems there isn’t the same scarcity-driven potential for price appreciation. Moreover, wouldn’t an unlimited supply risk causing inflation within the digital currency, devaluing each coin over time? I’m looking for insights into what makes these uncapped cryptocurrencies appealing to investors despite these concerns.

Answers:

0 Votes
7 months ago

Cryptocurrencies without a fixed supply often come with different value propositions that could make them attractive investments. For instance, they may have inflationary policies similar to fiat currencies, which can incentivize spending and staking rather than holding, leading to a more active economy and potentially increasing the utility of the currency. Additionally, some may have mechanisms that adjust the supply dynamically to maintain price stability or fund development and governance. This dynamic supply can sometimes reduce the impact of price volatility. Furthermore, the success of a cryptocurrency isn’t solely based on scarcity; network effects, technological robustness, and real-world utility are significant factors that drive adoption and, potentially, price increases. Investing in such cryptocurrencies might be based on a belief in the underlying technology, team, or use case rather than the scarcity-driven approach, anticipating that as the project’s adoption grows, so will the demand for the currency, which could lead to price appreciation despite the lack of a hard cap on supply.

0 Votes
7 months ago

Absolutely, the appeal of uncapped cryptocurrencies is often found in their unique design or goals. In my own experience, I have invested in cryptocurrencies that don’t have a capped supply as an opportunity to support innovative projects that are trying to achieve something different. A non-fixed supply can indeed lead to an active economy as it encourages spending rather than holding.

Additionally, it’s worth noting that the notion of ‘scarcity value’ doesn’t quite apply in the same way to cryptocurrencies as it does in traditional assets. The value of a cryptocurrency is more often found in its utility and the problems it solves, rather than just its scarcity.

Vertical82, do you think there should be more focus on educating potential investors about the different economic models that exist within the cryptocurrency world, so they can make a more informed decision on where to invest?

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