In the previous article, we discussed the concept of a hard cryptocurrency. The complete opposite of such assets is soft cryptocurrencies. Let’s find out what are soft cryptocurrencies?

Concept of soft currency

To begin with, let’s deal with the concept of soft currency. A soft currency is a currency whose annual inflow of new funds exceeds the general reserve. For example, if there are now 1 trillion X coins in the state’s circulation and the state prints more than 1 trillion X, this means that the currency is becoming soft.

In addition, soft currencies have several other properties. They are subject to volatility, their rate is constantly declining, they are unattractive for investment. This happens due to various economic and political factors. For example, during the isolation of the state or sanctions. At the moment, during the events in Ukraine, the Russian ruble can be considered a soft currency.

What are soft cryptocurrencies?

 

Most cryptocurrencies are soft. First of all, because the annual inflow often covers the general reserve. And from this there is already a consequence – almost all cryptocurrencies are volatile, unstable, and their rate is extremely difficult to predict.

Of course, we are not talking about all cryptocurrencies. And as we found out in the previous article, there are many cryptocurrencies, such as bitcoin, that have limited supply and inflow. This makes them solid, but does not protect against volatility. But why is that? Why are both hard and soft cryptocurrencies volatile?

What are soft cryptocurrencies: where is the limit of understanding softness? 

The thing is that any cryptocurrency does not completely fall under the concept of a soft or hard asset. First of all, because they have not yet fully formed as financial instruments. So far, cryptocurrencies are not universally recognized. They are not used by every first or second person on earth. Therefore, their properties are not fully disclosed.

Cryptocurrencies are a new system of money, so it simply cannot fully fit the old standards and definitions.

Bitcoin will be considered more of a hard currency due to its reserve to inflow ratio. Its volatility has nothing to do with it, it appears due to other factors. Over time, as its price rises, it will stabilize as an asset and become a full-fledged hard currency.

In the same way, more soft cryptocurrencies may appear, which are of no value, they will not want to invest in them, and their constant influx will play a cruel joke with their price.

There is only one conclusion: at the moment, bitcoin can be considered a hard cryptocurrency, but at the same time, most of the rest are considered soft because of their volatility and instability. However, in the future, as cryptocurrencies are adopted around the world, everything will change dramatically