Crypto’s coin market capitalization can be challenging to understand, especially when you are a beginner in cryptocurrencies. In this post, we will focus on the effect of market demand and coin supply on the value of a crypto coin.
The general relationship here is as simple as- Low supply= More demand = High coins value. This said, you need to scrutinize a coin’s supply before deciding on whether to invest and/or start a mining project or not.
Many cryptos have numbers representing their market capitalization. A good portion of them have no hard caps and will have boundless supply. There are other coins (commonly known as ICOs) that are locked or limited by a company or an individual before they are released into the market. An excellent example of an ICO is Ripple XRP. Now that the coins’ supply is a crucial factor that affects market capitalization, not to mention that it is a highly misapprehended concept, every beginner should focus on understanding it at an early stage.
Let’s Compare Two Cryptos; Litecoin and Bitcoin.
To help you understand this better, let’s compare two cryptos; Litecoin and Bitcoin. Litecoin’s present market capitalization is $10.048 billion, with a high circulating supply of $66.43 million Litecoins. On the other hand, the current market cap for Bitcoin is $600 billion with a circulating supply of $17.4 million Bitcoins. You can clearly note the difference in the circulating supply. Since the max supply for Bitcoin is capped at 21 million Bitcoins, the supply of Bitcoins will forever be far much less than that of Litecoins.
What Does Circulating Supply, Total Supply and Maximum Supply mean in cryptocurrency.
As the title of this post indicates, we are going to make precise what circulating supply, total supply and maximum supply means in cryptocurrency.
First things first, where can you source cryptocurrency information?
From our experience, these three sources are the best when it comes to market supply information of a given coin:
• Coin’s official website
Every coin has an official website where they provide supply information about the coin and links to websites and other reliable resources of information about the coin.
• Bitcoin Forum Announcement Board
Do you want to understand even the newest Altcoins in the market? This is the platform to go for. Just head out directly to their announcement page and you will find loads of information regarding circulating supply and the maximum supply of a coin in question.
Here, there is supply information for every crypto coin. They focus on details about current supply, total supply and max supply.
Circulating Supply, Total supply and Max supply
Now let’s get to the definitive guide for circulating supply, total supply, max supply and infinite supply.
• Circulating supply
This is the total amount of a crypto’s coin or tokens that have been mined at the moment. In a simpler definition, it is the total number that is in the hands of the public.
• Total supply
Total supply is the total number of coins in circulation in addition to the newly mined coins that have not found their way to the market. Some coins are always locked or reserved, meaning that although they are mined, they are held for some time before they are introduced to the public market. This also implies that they do not affect the coin’s price. Since total supply includes even these locked coins, its number is always higher than the number for circulating supply for a given coin.
• Maximum (Max) supply
This is a number that indicates the limit in which the circulating supply will never exceed. It is the maximal amount that a crypto coin can ever be generated.
• Infinite supply
Infinite supply is just that. A coin such as Ethereum with a present circulating supply of $114.57 million is not hard-capped, meaning that its maximum supply is limitless. A question may then arise. Doesn’t infinite supply limit the value of a coin?
To answer this, you must first understand that although the real value of a coin is a factor of its scarcity, it is still a question of time preference. Although the value of Ethereum may reduce in the future, the Ethereum that exists is still small, so the value may not go down anytime soon. What’s more, the crypto coin’s release rate will drop off over time and hence its value will rise.
Can a coin reach its Max value?
A coin such as Bitcoin with a Max value of $21 million may never reach its maximum value and there are reasons for that. First, it is projected that almost 99% of BTC will be mined or generated by 2032. However, to mine and generate the last 1%, it can take up to 100 years. This is just one of the reasons. Each day there some Bitcoins lost and are not subjected to any use. In addition, miners will give up the mining process when the rewards will decline significantly.
So, what exactly will happen if Bitcoin practically reaches its max value? The simple answer is- there will be no inflation since if the crypto’s demand will keep rising, the value will also increase accordingly. Whether the demand for Bitcoin will even rise in the future or not, time will tell! If you would like to learn more please read our article Introduction To Cryptocurrency Circulation