Deflation

Deflation refers to a decrease in the general price level of goods and services over time, increasing the purchasing power of money. While often seen as beneficial for consumers, persistent deflation can signal economic stagnation or reduced demand.

How Deflation Applies to Crypto

In the context of cryptocurrency, deflation can occur when a coin has a fixed or decreasing supply. Bitcoin, for example, has a capped supply of 21 million coins, making it deflationary by design. As demand grows and supply remains limited, the value of each coin may increase over time.

Broader Implications

Deflation in crypto encourages holding (HODLing) rather than spending, as users anticipate their assets gaining value. This contrasts with inflationary fiat currencies, where value erodes over time. However, extreme deflation can discourage spending and impact economic activity within crypto ecosystems.