Crypto Bullion’s Life Cycle
It is helpful to understand the fundamental properties of each crypto-currency when trying to determine which one is best suited to a particular purpose. In order to ensure a fair distribution of the crypto-currency, they are typically mined into existence using “consumer grade” hardware to give an equal opportunity to everyone. This is the first phase of most crypto-currencies and it is also the most inflationary and volatile. During this time, miners are putting downward pressure on the price because inflation of a currency implies a lower value and therefore the first to sell may realize the best short term gains. This force is directly opposed by those who believe in the future potential of the currency and are willing to buy or hold at certain prices. The dynamics of this balance change as the mining reward is reduced over time at a rate specified by the currency itself.
Crypto Bullion is unlike many other crypto-currencies in that its initial inflationary period was configured to taper off to its long-term inflationary rate within one year of its initial deployment. Crypto Bullion has surpassed this point of transition, meaning that CBX is in the next phase of its life cycle. It is currently the only second generation crypto-currency in the position to attract investment based on its ability to store wealth without losing a significant portion to inflation. We are further encouraged to hold it by the greater than 2% annual interest rate potential to be earned on savings. The future supply of CBX is very well known and stable which is one less potential negative that an investor has to worry about when assessing the value of CBX.
As more people learn about the utility of Crypto Bullion, rising demand will come from community members who are interested in either storing wealth, or investing to profit from such demand. Our advertisement and education efforts are what will bring this change about. This current phase which has left volatile inflation behind can be called the capitalization phase. During this phase of the CBX’s lifecycle there will be many opportunities for skilled investors to provide liquidity where the price rises too quickly, and to provide demand when a low price does not correctly reflect its potential. The fundamental shift that drives this capitalization will be a demand for real assets like productive land, precious metals, commodities and those crypto-currencies which represent an honest and fair medium of exchange and wealth storage on which to create a new economy and new financial industry. A reliable store of wealth is a necessary part of a healthy crypto-ecosystem and we will see the demand rise as markets shift from the legacy debt-based economy to a fair and open economy enabled by these new technologies.
As Crypto Bullion continues to mature, trust is built amongst the community attracting the attention of larger holders of capital. This general progression may go from hobbyists, miners, and small investors, to small business, large businesses, multinational corporations, financial institutions, and sovereign entities. There are no distinct lines that are crossed but each group influences aggregate demand throughout the capitalization phase. Investors may provide buying support anticipation of each new level of use and trust, while providing liquidity as the new demand is realized. This process helps to stabilize the overall price trajectory as capitalization continues through a changing demand profile. The greater the trust in Crypto Bullion’s ability to store wealth, the more stable its value measured against other commodities becomes. The capitalization phase will eventually give way to the long term store of wealth phase in which Crypto Bullion aims to gain recognition as a safe haven asset.
The cryptographic currency market can naturally be seen as part of the greater foreign exchange market which includes all government issued fiat currencies. Many parallels can be drawn and it can get very technical. In order to be understood by the widest audience, we have left out some distinctions which are not relevant to the overall understanding of these concept and would likely cause confusion. We will begin by defining some basic elements found in these markets, the forces that are at play, and details on the roles to be filled in this new economy.
The Monetary Base of a currency is the total number of units of a currency that are in existence. The monetary base can expand or contract. Expansion happens through mining and minting, while contraction occurs if a wallet is permanently lost. Although the monetary base may expand, if the new units are being held and not put on to the market, they may not cause a loss in relative value known as inflation. Correspondingly, if a large amount of the currency is lost forever or simply held by the population, an apparent shortage of the currency eventually forces the market to realize a higher exchange rate, identified as deflation. These forces act to stabilize the market as low relative prices encourage spending, and high relative prices encourage saving, thus maintaining a steady exchange rate and flow (i.e. velocity of money).
Unit price is the cost per unit currently found on the open market for a particular crypto-currency. In a currency with a very low expansion rate, this would be primarily affected by the flow of capital. Currencies experiencing a high expansion rate of the monetary base will require a supply of capital inflow to balance against the base expansion, called the maintenance cost. As the unit price doubles, so does the capital inflow rate requirement (maintenance cost). This dynamic becomes readily apparent when the unit price rises too quickly for the capital inflow rate to maintain the new price (pump) and a correction must occur (dump). In addition to capital inflow, the maintenance cost can also be countered by members of the community who choose to hold and save their currency.
Market Capitalization can simply be seen as the total amount of capital that has been invested into a currency. For these markets, normally it is measured in USD, but it could be measured in BTC or any other currency. Usually we would measure this in the currency that we are more familiar with or the one which we perceive to be the most useful. From an investment point of view, market capitalization is a measure of popularity but not necessarily profitability. Market capitalization is calculated by multiplying the unit price by the number of units. Investors are primarily concerned with the unit price because this is the direct value of what they hold. If the capital inflow is directly balancing against the expansion of the monetary base (paying the maintenance cost) we will see an increase in market capitalization over time, without an increase in unit price.
Capital flows can be understood when we realize that there are many different reasons to hold a crypto-currency. They can be held to spend, held to save, held to invest, and used to move funds from one person, place, or market to another. Each of these actions has an implied positive effect on the market capitalization for the length of time that it is held in that currency. For example, we can convert USD to Bitcoin, and Bitcoin to Crypto Bullion where is it held for a year. Each week, a portion is converted to Bitcoin and then to Litecoin as a weekly spending allotment. We can see that Bitcoin was used the most often, but with the shortest hold times. CBX was the least active, but with the longest hold times. Litecoin was being held, but not in great quantities. The fact that different roles are being played here is not widely known and provides the diligent investor with more tools to understand these markets.
In order to further understand why one crypto-currency cannot fill all roles, we must look at the ideal fundamentals for each role. A store of wealth must have a low inflation rate to preserve capital and reduce volatility, and can encourage holding by providing interest. An adopted currency must encourage spending by inflating to match the size of its expanding economy as more participants hold to spend. A market gateway should have a positive inflation rate to encourage liquidity and high volume access to many different markets.
Get in touch with the Crypto Bullion Team direct with your enquiries.