Other things being constant, it is reasonable to assume that the higher the token inflation, the worse the price performance of a token. In order to verify the statement, we proposed to investigate the relationship between token inflation and return. In addition, we are also interested to discover the relationship between token inflation and change of market capitalization.
Quick Take Away:
- There exists the weak negative linear relationship between inflation and return. The higher the inflation, the lower the return
- There is no relationship between inflation and market cap change
- We cannot accept the alternative hypothesis that “low inflation tokens have better return than high inflation tokens”. This means that we don’t have a statistically strong evidence to support the first statement
Result indicates a negative relationship between inflation and return:
- Correlation: -0.44
- Regression Slope: -0.997
- R-squared: 0.1915
While there is no relationship between inflation and market cap:
- Correlation: 0.00
- Regression Slope: 0.003
- R-squared: 0.000002
We have further performed a hypothesis test on checking the average returns of high inflation tokens versus low inflation tokens.
The p-value of the one tailed t-test is 0.251, indicating we cannot accept the alternative hypothesis. i.e. It is NOT statistically significant to tell that “low inflation tokens have better return than high inflation tokens”.
To read the full version of the Token Inflation Study, read the PDF version here.