What are the potential drawbacks of a cryptocurrency with an inelastic supply?

6 answers

• Dec 25, 2021 · 3 years ago
  One potential drawback of a cryptocurrency with an inelastic supply is the lack of flexibility in adjusting to market demands. With a fixed supply, the cryptocurrency may not be able to meet the increasing demand during periods of high interest, leading to price volatility and potential market instability.
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• Dec 25, 2021 · 3 years ago
  Another disadvantage is the potential for hoarding and concentration of wealth. If the supply is limited, individuals or entities with large holdings of the cryptocurrency can control a significant portion of the market, potentially leading to wealth inequality and reduced market competition.
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• Dec 25, 2021 · 3 years ago
  From BYDFi's perspective, a cryptocurrency with an inelastic supply can provide stability and a hedge against inflation. However, it may also limit the growth potential and adoption of the cryptocurrency, as it may not be able to keep up with the increasing demand and usage in the long run.
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• Dec 25, 2021 · 3 years ago
  In addition, a fixed supply can make the cryptocurrency more susceptible to market manipulation and price manipulation. Since the supply cannot be adjusted, it becomes easier for individuals or groups to manipulate the price by creating artificial scarcity or flooding the market with supply.
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• Dec 25, 2021 · 3 years ago
  Furthermore, a cryptocurrency with an inelastic supply may face challenges in maintaining liquidity. If the demand for the cryptocurrency decreases, it may be difficult to sell or exchange the cryptocurrency, leading to reduced liquidity and potential loss of value.
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• Dec 25, 2021 · 3 years ago
  Lastly, a fixed supply can also hinder the ability of the cryptocurrency to serve as a medium of exchange. If the supply is limited and the demand for the cryptocurrency increases, it may become less practical for everyday transactions due to high transaction fees and limited availability.
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