Understanding Cryptocurrency Supply Inflation
Bitcoin (BTC) changed the financial landscape by introducing a digital asset with a capped supply inflation. Since then, numerous cryptocurrencies have emerged, each with its own supply inflation dynamics. The price of a cryptocurrency is influenced by both its supply inflation and market demand. When there is high demand for a limited supply, the price rises against other currencies. Conversely, if the supply increases more than the demand, the price falls.
Supply inflation refers to the rate at which new coins or tokens are added to a cryptocurrency’s circulating supply. This inflation rate is determined by dividing the yearly addition of coins by the current circulating supply. By observing how much the price of a cryptocurrency changes within the same market capitalization after one year, we can see that as inflation adds new coins to the circulating supply, the expected price decreases.
GPT-4 Recommends 3 Cryptocurrencies with Low Supply Inflation
To identify cryptocurrencies with low yearly supply inflation rates, Finbold utilized a GPT-4 API bot. This ChatGPT bot provided a list of some of the least affected decentralized currencies in terms of inflation.
Nano (XNO)
The first cryptocurrency recommended is Nano (XNO), which has a 0% yearly supply inflation rate. With a circulating supply of 133.24 million XNO and a current price of $0.70, Nano has a market cap of $93.27 million. All units of Nano were already in circulation from its genesis block, resulting in no additional supply inflation for this low-cap cryptocurrency. Despite having the lowest supply inflation in the market, Nano has not experienced consistent demand growth since November 2022 and has lost 11.4% of its value over a year.
Monero (XMR)
Monero (XMR) was identified as the cryptocurrency with the second-lowest supply inflation. In May 2022, Monero implemented a tail emission of 0.6 XMR per block. With a new block mined every two minutes, this adds 423 XMR daily and 157,680 XMR yearly to the circulating supply. At the time of publication, there are 18.35 million Monero coins in circulation, resulting in an inflation rate of 0.86%. Despite its supply inflation, Monero is currently trading at $169 per coin, with a 6.96% yearly gain since November 2022.
Bitcoin (BTC)
Bitcoin has the highest supply inflation among the three picks from ChatGPT-4 but still maintains one of the lowest yearly rates in the market. Currently, Bitcoin has an emission of 6.25 BTC per block every 10 minutes, adding 900 BTC to the circulating supply daily. By the end of 2023, approximately 328,500 BTC will be added to the circulating supply, resulting in a yearly inflation rate of 1.68%. Despite this inflation, Bitcoin has experienced significant demand growth over the past year, with a price increase of 64% from $21,150 to $34,723. Furthermore, Bitcoin’s supply inflation will be halved in 2024 through the block subsidy halving.
Hot Take: Importance of Demand for Cryptocurrencies
While low supply inflation is beneficial for cryptocurrencies in terms of their fundamentals, it is not sufficient for positive results in the mid-term. The demand for cryptocurrencies plays a crucial role in determining their value, whether driven by speculation or utility purposes.
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