What is a deflationary currency and how does deflation affect price?

One of the most common questions we get asked is: is crypto a good store of value?

To answer this question, you need to understand how the crypto world operates when compared to the fiat world. The global economy is indeed an inflation-based model, where the amount of printed money is intentionally increased every year to make it decrease in value. Therefore, people are more incentivized to spend it now than save it for later, contributing to a spending economy with free-flowing cash.

But when it comes to crypto, deflation is all that matters.

In the crypto space, people are encouraged to #hodl — the longer you hodl your coin, the higher the coin’s value will gain. Some argue that this model makes no one want to spend their assets, but knowing that our Bitcoin could be worth way more tomorrow than today, who'd want to spend it now?

In general, crypto is a kind of deflationary currency and you may expect it to only increase in value in the long term as the supplies of most crypto are fixed. Take Bitcoin for example, the mechanism behind the coin is that it goes through halving every 210,000 blocks, about 4 years on average. Halving is at the core of the crypto deflation-based model as it makes sure coins are issued at a steady pace while following a predictable decaying rate with no infinite supply — and that’s what distinguishes crypto from fiat.

In general, historical data shows that Bitcoin prices tend to jump around halving times. According to the Law of Demand, even if the demand for Bitcoin doesn’t increase (which is impossible, in Bitcoin’s case), the price will inevitably go up as the supply continues to decrease.

Apart from halving, coin burning is another unique concept to the crypto market and a popular strategy for projects down the road. OKB, adopted by OKX as its utility token, adopts a periodic coin burning mechanism “OKB Burn program” to add value for its holders. Coin burning is designed to reduce the total supply in circulation, as the coin is intentionally destroyed by sending it to a black hole address. Not only does it stabilize the valuation of the token, but the scarcity created also increases traders’ demand for the coin when there's a less amount of it available to satisfy everyone’s needs.

Can you feel the burn?

Following the launch of the much-anticipated OKChain testnet on February 10, 2020, a burn of 700 million unissued OKB was announced, alongside a promise not to issue any additional OKB tokens. Since then, OKB has entered an absolute deflation. The market was in awe of the move, and OKB price rocketed immediately with 46% rise in just 24 hours’ time on February 11, 2020, reaching its all-time high at $7.51 on February 19. Eyeing the opportunity, other exchanges hastily announced a burn of the tokens held by their teams.

On February 29, 2020, OKB completed the seventh OKB burn, the amount of OKB burned between Dec 1, 2019 and Feb 29, 2020 was 3,183,344.61 OKB, equivalent to $17,500,000 US dollars. At the time of writing, there are 195,679,094 OKB in circulation, and OKB ranks among the top 15 cryptocurrencies by market capitalization globally, offering over dozens of use cases by partnering with 35 external businesses. The token is listed on eight major C2C markets worldwide and a dozen of mainstream exchanges with over 40 major asset trading pairs available.