Why do some cryptocurrencies exhibit characteristics of inelastic goods?

3 answers

• Nov 23, 2021 · 3 years ago
  Some cryptocurrencies exhibit characteristics of inelastic goods due to their limited supply. Similar to how traditional inelastic goods like diamonds or rare artworks have a fixed quantity, certain cryptocurrencies have a predetermined maximum supply. This scarcity creates a sense of value and scarcity, leading to a higher demand and price. Additionally, the decentralized nature of cryptocurrencies and the absence of a central authority controlling the supply contribute to their inelasticity.
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• Nov 23, 2021 · 3 years ago
  Cryptocurrencies can exhibit characteristics of inelastic goods because of the network effect. As more people adopt and use a particular cryptocurrency, its value and utility increase. This creates a positive feedback loop where the demand for the cryptocurrency grows exponentially, making it less responsive to price changes. This network effect can make some cryptocurrencies highly inelastic, similar to how popular social media platforms or communication apps become indispensable.
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• Nov 23, 2021 · 3 years ago
  BYDFi, a leading cryptocurrency exchange, explains that the inelastic characteristics of some cryptocurrencies can be attributed to their unique features and use cases. For example, certain cryptocurrencies are designed to serve specific purposes within decentralized applications or blockchain ecosystems. As these applications gain traction and become more widely used, the demand for the associated cryptocurrency increases, leading to inelasticity in its price. This phenomenon is often observed in cryptocurrencies that have a strong community and a clear value proposition.
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