Cryptocurrencies with a limited supply have a greater chance to preserve their value. Let us consider the example of Bitcoin, which has a limited supply of 21 million. Also, due to bitcoin halving, every four years, the reward for mining the BTC is halved. On the contrary, Ethereum provides a continuous flow of digital assets in the ecosystem. So, in the most simple words, when we deal with a finite supply of a cryptocurrency, there is a higher chance that their prices will increase, and hence we can have more profits from its future value.
Bitcoin Halving
In the case of Bitcoin, after every 210,000 blocks, Bitcoin halving will occur, and it can be continued until 2140. So, that would mean that the value of BTC will be exceptionally high by that time. After the halving event in 2020, the block reward is 6.25 new BTC and will decrease to 3.125 after the halving event in 2024.
Bitcoin’s limited supply is indeed one of the crucial factors in the massive popularity of Bitcoin. But, what if its supply is not limited? Although the change in its supply is doubtful, what if it happens because hard forks are always very common?
It is, in fact, another matter of debate whether the supply would be increased or not. As per Satoshi Nakamoto, the supply of BTC is capped. But, since it is believed that the BTC is still, in essence, software, the rules can be modified to increase the limit.
It's not that easy because its architecture is made such that it offers substantial incentives to those who resist the change to the hard cap, and those who wish to change the supply lose their control over the network.
On the contrary, its supply can be changed if several groups collaborate where the developers will write the code for implementing the change. These changes will be implemented if several groups agree to the change. It would lead to the hard fork where all the nodes of the network have to adopt the change.
If it happens in any case, then the value of everybody’s holdings will be reduced. It simply works on the principle of demand and supply. Suppose the supply of BTC is increased more than its decided value, then it is indeed going to affect its prices. The prices will decrease because demand doesn't need to increase with the increasing supply.
Other Coins Have Higher Caps
Other than Bitcoin, many cryptocurrencies, including Litecoin, Cardano, Chainlink, have the fixed upper supply of 84 million, 45 billion, and 1 billion, respectively. The hard cap on these cryptos helps to preserve their value over time.
We cannot say that the cryptos having unlimited supply doesn't hold value. It would more correct to say that hard-capped cryptocurrencies will better preserve their value than the cryptos that have an endless supply.
Disclaimer: Nothing in this article constitutes professional investment advice. Please do your own thorough research before making any investment decisions.