The Trouble With Deflationary (Fixed Supply) Currencies

The creation of Bitcoin, a currency with a fixed total supply that is anti-inflationary is a stark contrast to the central bank issued fiat currencies. The ability to control the total supply of the currency and reduce the impact of inflation should be a good thing, but is it?
I will be outlying the negative points of a deflationary currency below, however this should not be confused with FUD, it is merely the economic points that need to be considered when investing and using these currencies. I am huge supporter of cryptocurrencies, but I believe in being honest and providing education to help other investors.
I will be using Electroneum (ETN) as my example in this article as it is a popular and growing cryptocurrency that is attracting many first time investors and many first time cryptocurrency users so they may get the maximum benefit.

The reason why a fixed supply currency is called deflationary is because there is no way to increase the supply of the currency, as the user base and use case for a currency increases the competition for the acquisition of the currency increases which increases the price. Inflation however is where the supply of the currency is increased faster than the increase of user base and use case which causes the value of the currency to go down. We can see from these two examples that one gains in value and one loses value which may lead us to think the currency that increases is the better one, but this may not be so.

Currencies like Bitcoin (BTC) and Electroneum (ETN) have a limited supply and as they grow in popularity their prices rise (assuming a normal or bullish market). News reports can swing the prices up or down greatly which reduces the stability of the currency price which makes it hard to be used as a currency (a unit of exchange to be able to purchase goods or services). If the price of a coin is too volatile it will cause vendors and spenders alike to hold onto the currency or to dump it. A currency cannot function as a currency if someone cannot foresee the purchasing power of the currency while doing a weekly, fortnightly or even monthly budget. If someone all of a sudden finds out they can only purchase less than what they thought in a given period and then buy more the next period it does not inspire confidence in that currency.
If for example the currency keeps going up in value the holders of the currency are not likely to spend it as they want to make a gain of the increase off the value and thus the currency becomes an asset rather than a money. While it is good for it to keep going up for an investor, in this article we are treating it as a currency for actual use, and thus this is not a good thing. Conversely if the value of the currency keeps falling people will either try to dump it as fast as possible by spending it before the next downward motion will kick in and then vendors and other people will refuse to accept it as a payment, or once again the currency becomes an asset in which people buy low during a depressed market and hope that it gains in value at a later stage. In both of these examples the currency stops working for its intended use, however in the last example the value of a currency mimics a cycle of inflation or hyperinflation.

Because Electroneum (ETN) has a business, development and marketing team it can focus its efforts on increasing utility (use case) as well as increase its user base. Electroneum (ETN) so far are doing a good job at increasing the user base which is very good for the currency. This however is not enough if you consider that Electronuem (ETN) is trying to be a global currency. Electroneum (ETN) would need to massively increase its user base even further to start to attract more use cases through partnerships with other businesses and developing a full payment ecosystem.
Electroneum (ETN) will need to have its use case and user base increase faster than the rate of issuance of new coins through the node and mobile mining. The reason for this is because it encourages the spending of the currency which will have an effect to slow the growth of the currency to make the price more stable. At the end of the day a currency wants to be stable to have any effective use.

The main issue with a fixed supply currency is that the currency will be treated as an asset rather than a medium of exchange. This extends to investors investing in an ICO to get a new currency. When people invest in these coins they are hoping for a big increase in price to make a profit. It is this mindset when it comes to cryptocurrency that hinders the use of cyrptocurrencies as a medium of exchange.

As stated in my introduction I am not here to spread FUD or to be negative about Electroneum (ETN) or cryptocurrencies in general. I am simply trying to provide some information that people may not have considered. It is my hope that Electroneum (ETN) becomes a great currency and has a slow rise in price to enable its use of being a transactional currency.