Definition ∞ The scarcity effect describes the economic principle where an asset’s perceived value increases as its availability decreases. In digital assets, this is often tied to fixed supply schedules or token burning mechanisms that reduce the circulating quantity. This limited supply can drive demand and consequently influence price appreciation.
Context ∞ The scarcity effect is a primary driver discussed in relation to the valuation of many cryptocurrencies, particularly those with predetermined maximum supplies like Bitcoin. Debates often revolve around whether this programmed scarcity is sustainable and its long-term impact on market dynamics.
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