So many cryptos investors always ask if burning increases the token price?
I’m not a fan of the belief that a crypto coin burn increases the price of a crypto asset.
I’ll state the reason, but before then, let’s briefly go through the explanation of what token burning is.
What is Crypto Burning?
Crypto burn is simply a process of reducing the circulating supply of a particular crypto asset. To do this, numbers of the assets need to be sent to a burn address.
Is Burning good in crypto?
The essence of the burn address is that; any token sent to the address can’t be sent back out from it, and no one has a private key to unlock the wallet. The amount of the assets will be removed (totally) from circulation.
Now, crypto burn is not going to magically cause a hike in the price of the asset, the main reason why crypto assets are burnt is to increase their scarcity.
Does Burning Increase Token Price?
It’s almost impossible to keep a cryptocurrency’s price consistent in the long term unless it’s pegged to a real-world asset. Because this isn’t the case for the majority of coins and tokens out there, price drops are pretty commonplace in the market.
But there are ways through which a crypto’s supply can be intentionally increased. One such method is known as burning and that is why people usually ask if burning increase token price.
Hence, when numbers of crypto assets from the circulating supply are burnt, the price can only increase, owing to the burn event, if there’s more demand for that particular asset in the market.
So I believe that a burn event can only maintain the value of a crypto asset to prevent it from a severe dump in price.
How to check burn token
To check if at least a part of the liquidity is burned before the farming starts, you can check the liquidity token contract for the current holders.
If liquidity is “burned” this means it cannot be removed at any time. Having liquidity locked or burned is a good sign for the investors, as it cannot be removed short term, which reduces the soft-rug risk a lot.
For a better understanding of how to check a burnt token, watch the video below