- Crypto coin’s valuation is being notably driven by scarcity
- Unlike Bitcoin, all cryptocurrencies in the ecosystem are created with different economics of scarcity
- Meme-inspired digital assets have proven that the community also has a greater impact on a crypto asset’s valuation
- NFTs with the highest degree of scarcity have the most opportunities to utilize creative pricing strategies
Crypto assets have seen mainstream adoption and incredible growth. The booming prices in the cryptocurrency market is one of the reasons that gained a lot of traction. Notably, according to many in the industry, scarcity is the key part of these asset’s value. However, it is also worth noting that not all the assets are created equally. Due to scarcity, Bitcoin also has attracted several headlines while creating new highs, and earning renewed reputation as digital gold while the US Treasury prints more fiat. However, although there are many, but not all crypto or Non-Fungible Tokens (NFTs) have scarcity as its key component for value propositions.
Scarcity is not same for all crypto assets
According to Michael Terpin, founder and CEO of Transform Group, the fixed supply of BTC is most highly valued because it is coupled with accelerating demand, proven utility, and recognized desirability. It is notable that the total supply of BTC is capped at 21 million coins. However, in the current scenario there are only around 19 million BTC in circulation, as the remaining coins will take a century to get mined.
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Still it is noteworthy that all coins are not created similarly, as Ethereum the second most popular cryptocurrency has its own economics of scarcity. Notably, Ether’s economy also includes the ability to burn tokens to offset high gas fees or user payments that cover the computing cost to verify the coins on the blockchain. While talking about Ethereum it is also significant to note that the coin powers most of the current DeFi and NFTs ecosystem. The blockchain gives the sectors a unique competitive edge as per Terpin.
Time is an significant part of the equation
The coin designed by Satoshi Nakamoto has more than a decade of track record behind it. The supply and demand mechanism has helped the Bitcoiners to get a little idea on how to value the virtual currency. Besides the mechanism, it is also observed that the community also has a greater impact on a crypto asset’s valuation. Noting the meme-inspired coins in the market how they tend to flood the crypto ecosystem with new information. Indeed, experts deemed that such a phenomenon in the market can interrupt any notion of predictability or patterns in value.
For instance, Dogecoin has infinite supply, likewise there is also Shiba Inu with a quadrillion tokens. It was speculated that the price of these tokens are spiking with contributions from Elon Musk’s tweet. However, the transparency of the blockchain has revealed that the crypto whales are the true reason behind the surges.
Role of scarcity in soaring NFTs
NFTs or digital collectibles could be considered having the highest degree of scarcity. Hence the crypto collectibles have the most opportunities to utilize creative pricing strategies. Notably, any artists in the world of crypto can also use a descending price strategy that is also known as Dutch auction. Such strategy helps to reduce the value of the tokens over time to maintain a kind of economic equilibrium.
However, the value of NFTs tends to be more subjective, in comparison to the value of crypto assets that lean much more on principles of economics. Such principles include Fiscal Policy and Supply and Demand.
Indeed it is worth noting that scarcity is the main force driving the value of the crypto asset in the ecosystem. The fact is undoubtedly similar to most of the markets and economic ecosystems where scarcity plays a critical role. It is also one reason that forces cryptocurrency evangelists to see the leading coin as “digital gold”, as it is unlike the USD with finite supply.