The emergence of Bitcoin in 2007 caused a wide variety of reactions among traditional financial sectors. The first cryptocurrency was, and still often is, seen to be fundamentally flawed, owing to the fact that there is only a set amount of Bitcoin which can ever be mined. However, this very fact about the nature of cryptocurrency is the same thing that its supporters claim is its saving grace. With Bitcoin, coins are mined by solving an equation, the value of which is known, which then contributes to the blockchain. Bitcoin has a mounted provide cap of 21 million coins, meaning that it is likely the last Bitcoin will be mined around the year 2140. It is this cap which is often the subject of consternation and worry among traditional financial marketeers. But as we shall see, its inherent deflationary nature is not necessarily anything to worry about.
From the very start, part of the whole idea behind Bitcoin was that hyperinflation is essentially impossible. As there will not be any more than the set amount of Bitcoin ever produced or released, it is not a market which can undergo any rapid kind of inflation. In traditional markets, this would normally mean that the value of the currency would also never waver much. However, there is one big problem with this approach to currency: such a system does not have much liquidity, meaning that it has a limited ability to buy or sell an asset without causing a drastic change in the asset’s inherent value. A huge result of this poor liquidity is that big investors from other markets cannot easily or reliably enter into the cryptocurrency market with any kind of sizeable investments. This, in turn, only contributes further to the deflation of the cryptocurrency. Not only that, but it also causes a huge amount of scepticism, which is something no market wants if it is to be as strong as possible.
Traditionally, deflation is seen as being a sign of a poor or weak system. Most monetary ecosystems will want to avoid deflation as much as humanly possible, as it essentially means there is a lack of decent growth. But cryptocurrencies are so new, unique and widely different to the traditional forex options that it is difficult to draw easy comparisons between them. At least, you cannot claim that they are equal, and this itself leads to all sorts of problems. The primary concern with deflation, of course, is that it might well lead to a fall in costs. When you add that worry to the poor liquidity you see in Bitcoin and other cryptocurrencies, you can see why traditional investors might start panicking. But it is not all so simple.
When individuals are going through periods of recession or other monetary hardship, it might well mean that they flock to a more liquid market. When it comes to the likes of Bitcoin, this could well be a very good thing. In deflationary currencies such as Bitcoin, deflation itself will probably bring about a rise in price. Seen from this perspective, it is hard to say that deflation is a bad thing for any cryptocurrency in any sense.
If deflation will likely increase the value of the currency, you might argue that it is something that we want to try and bring about. Although cryptocurrency is already highly deflationary, being able to increase the rate at which the market deflates might well mean an even higher or faster peak, and that is something that investors everywhere would want to get in on. But as we have seen, the lack of liquidity in Bitcoin and other cryptocurrency markets means that larger investors are often effectively excluded from partaking in such investments. Is there a way to marry the fact that these investors might want to benefit from the coin’s rate of deflation, with the understanding that it is currently quite difficult to do so?
Fortunately, it seems as though there might well be a solution to hand. If you want larger investors to get involved, you need to be able to ensure that larger cash flows can come and go without causing any sudden or major shifts in market price. At present, this is not the case with any cryptocurrencies. But it now seems that it might actually be possible to make this happen. All you need is a professional approach to bringing about more and more liquidity in the marketplace. This will inherently mean a faster growth for all – and a more stable one. So how might this be achieved?
One way is to create a liquidity pool of funds, and then allow the cryptocurrency marketplace to increase the depth of various order books. The concern that is immediately thrown up at this point is how you could possibly fund such a liquidity pool. That’s where Quantum tokens come in. Using Quantum tokens, we could reasonably expect to provide decent and lasting liquidity for cryptocurrency markets for the future. Where it gets interesting is in the way that the liquidity pool will function. Any income generated from the liquidity pool will be used to then buy back Quantum tokens at the best price, and then subsequently destroyed permanently. This process of buying back and destroying will decrease the number of tokens in existence and therefore increase the value of the remaining tokens. Effectively, liquidity will have been created. With also keeping back around two thirds of the issued tokens, the liquidity pool can be increased even more in future, giving Quantum tokens a real opportunity for long-term sustainable growth.
While cryptocurrency is inherently deflationary, this can be easily used to one’s advantage. The Quantum token (QAU) is a good example of how it might be possible to increase deflation and so raise the value of an existing coin. As it turns out, deflation might not prove to be such a bad thing after all – and there might be an opportunity for large investors to make good use of cryptocurrency yet.