The U.S. inflation rate stands at 8.6%, which is bad news for savers, who could see the value of their money evaporate over the long term. And while cryptocurrency is a speculative and highly uncertain alternative to cash, some coins hedge against the challenge of inflation. Avalanche (AVAX 1.01%) and Binance Coin (BNB -0.68%) boast deflationary designs where the number of coins in circulation is programmed to fall over time. Let's explore why these assets may have a place on your investment watchlist.
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1. Avalanche
Avalanche is one of several potential "Ethereum killers" designed to host decentralized applications (dApps), or self-executing programs stored on the blockchain. Avalanche is exciting because it offers big scalability advantages over the market leader and a unique coin-burning mechanism designed to reduce its circulating supply over the long term.
DApps have revolutionized blockchain technology because they enable a wide variety of use cases ranging from digital art markets to decentralized metaverse games. But while these projects promise to boost user adoption of cryptocurrency, they increase the workload on the blockchain -- pushing popular networks like Ethereum to the limit. This problem causes network congestion and transaction fee volatility.
With a transaction capacity of 4,500 per second, Avalanche's smokes Ethereum, which can handle only 15 transactions in a second. The platform's speed could make it a viable alternative for dApp developers unwilling to wait for Ethereum to fix its scalability issues.
Investors also have a strong case for betting on Avalanche because it is programmed to burn all transaction fees by sending the entire fee to an inaccessible address where it is removed from circulation. This means the supply of its native token (AVAX) will fall as user adoption grows. Over time, the deflationary design will help reduce token supply relative to demand, helping to support prices. So far, Avalanche has burned 1.85 million units of AVAX worth $36 million.
2. Binance Coin
Binance Coin is the native token of the Binance Exchange, a major cryptocurrency trading platform started in China (and now based in the Cayman Islands). The asset's association with a massive global enterprise gives it a high level of real-world utility. And the blockchain's deflationary design could also help maximize investor returns.
With a daily volume of $11 billion at the time of writing, the Binance Exchange is the most widely used in the world -- over seven times larger than its closest rival, Coinbase Global. Binance Coin's association with this massive company means investors can buy Binance Coin to bet on the continued success of the Binance Exchange because the coin offers perks such as discounted trading fees for traders who use it to interact on the exchange.
Like Avalanche, Binance Coin also boasts a deflationary design. The blockchain has a circulating supply of 163 million coins (out of a starting maximum supply of 200 million). And it features an automatic coin-burning mechanism designed to reduce the circulating supply to 100 million by sending some of every transaction fee to an inaccessible wallet.
Where is the bottom?
The deflationary designs of Avalanche and Binance Coin could position them for long-term success. But investors shouldn't overlook the near-term challenges that face the industry. With inflation sky-high, the Federal Reserve is expected to continue increasing interest rates -- tightening the money supply and reducing the capital available for crypto investment.
We simply don't know when the cryptocurrency bear market will bottom out. And while Avalanche and Binance Coin could make a great way to bet on a rebound, investors may want to be patient until some of these macroeconomic challenges are sorted out.
