This Coin’s Supply Goes Down as the Price Rises


Ampleforth (AMPL) is a cryptocurrency built with an elastic supply that expands and contracts depending on demand. According to its co-founder Evan Kuo, the team was trying to learn from the failures of the gold standard and Bitcoin (BTC) to create a more flexible monetary system.

Investors hoard Bitcoin & gold

Although many in the crypto space perceive the finite inelastic supply of Bitcoin and gold as a major advantage over fiat, Kuo disagrees:

How To Get Free Crypto  

“The only problem with gold arises when you start to use it as a base money or building block as part of a financial infrastructure.”

Since Kuo perceives Bitcoin as digital gold, the same problems apply. As demand goes up, the price increases and if in addition to that, the population expects future price increases, they start hoarding the asset. This leads to a deflationary spiral. Ampleforth is designed with an elastic, automatically adjustable supply. Once a day, the supply either gets automatically expanded or contracted depending on the level activity in the past 24 hours.

Creating an asset uncorrelated with Bticoin & traditional assets

The total supply is also adjusted, although each holder’s proportional stake does not vary. The equilibrium price target is set to one 2019 Consumer Price Index adjusted dollar. Kuo acknowledged that it is unlikely that AMPL will become a stablecoin in the near future:

“And so it is true that we do have this price target and is also true that in the long run, this will potentially become much more stable. But it’s not at all a near-term goal or measure of success.”

According to Kuo, one of the main goals of this design was to create an asset that would be uncorrelated with traditional assets and Bitcoin. Although historically, Bitcoin and other crypto assets have exhibited low correlations with traditional assets, every major crypto has been tracing Bitcoin’s path. This presents a challenge to crypto investors as it is impossible to achieve diversification with highly correlated assets.

Correlation between Bitcoin and other top cryptocurrencies. Source: Coin Metrics.

We calculated a simple Pearson correlation between the prices of Bitcoin and AMPL and it stands at 0.1, which is very weak.

Coinbase Banner  

Investors may lose money as price goes up

One interesting outcome of Ampleforth’s design is that an investor needs to assess their investments differently. Normally, if a portfolio asset goes up in price, you make money (with some derivatives it may be the opposite). With AMPL, this may not be the case. 

Let’s say an investor owns 10 AMPL that they acquired for $1 each, making their portfolio worth $10. The price then increases by 10% to $1.10, but the supply contracts 50%, decreasing the investor’s holdings to 5 AMPL. Despite the price appreciation, the investor’s portfolio diminishes to $5.50, losing 45% of its original value. 

One possible strategy would be to “front run” the daily adjustment by analyzing the data and anticipating the direction of the upcoming change. Kuo admitted that this could be a viable strategy, but it is not without its caveats:

“You also have to remember that everyone else also has the data themselves, so it’s game theoretic. And yes, that strategy certainly is a good strategy. I mean, it’s an interesting strategy. <...>. But it is not without risk because you’re making a bet.”

Kuo believes that AMPL (which he calls “oracalized money”) may present new opportunities to the DeFi space because of its unique properties. These opportunities do not have to be limited to Ethereum (ETH); according to Kuo, the team has considered AMPL a “multi-chain” asset from the beginning.

FreeBitcoin Banner  

Go to Source
Author: Michael Kapilkov

Recommended Crypto Services, Products and Strategies:

The first thing any crypto investor needs is is a reliable and secure Crypto Wallet.  Whether you’re looking for an online wallet, hardware wallet, desktop or mobile wallet, Crypto Renegade provides you with all the Best Crypto Wallets in each category.

Best Crypto Wallets Banner

When you’re ready to buy more crypto, or exchange your coins for others, Crypto Renegade’s list of the Best Crypto Exchanges has you covered.  The Crypto Exchanges recommended here offer everything from simplicity and convenience to advanced trading platforms and profit sharing. 

Best Crypto Exchanges Banner

If you want to learn more about the methods and tools that can be used to find Great Crypto Projects, then be sure to check out Crypto Renegade’s strategy for How To Find The Best Cryptocurrency.

Crypto Strategy Banner

For those people that don’t have any money to invest right now, or just want to understand the technology a bit more, you’ll definitely want to check out Crypto Renegade’s Free Crypto Strategy and start collecting Free Coins today!

Free Crypto Banner

What do you think about cryptocurrency? Do you have any questions about it? Be sure to leave a comment below.

This site uses Akismet to reduce spam. Learn how your comment data is processed.