Crypto coins or tokens can be easily compared to shares on the stock market since their prices are based on how much demand there is for them. The more coins there are, the more people need to want them for the price to go up. A low supply means that the piece (a share) is hard to get, and if it's in high demand, its price will go up. On the other hand, a cryptocurrency's price may go down if there is a lot of it, but not many people want it.
The idea of "supply" in the crypto industry refers to the total amount of tokens that will ever be created, with "maximum supply" being the absolute maximum and "circulating supply" reflecting the current number of tokens in circulation. Tokens that have been produced but have not yet been distributed are added to the overall supply until it reaches their maximum supply.
The value of a coin will grow in the case of great demand and limited availability. But why is this important? The token supply directly impacts a cryptocurrency's value, making supply and demand rules crucial.
In contrast, if there is an ample supply of tokens but relatively little demand, the value of a cryptocurrency may fall. The maximum supply is the most crucial factor in determining a token's potential value, which is impacted by both the total supply and the circulating supply.
Though the supply type names are self-explanatory, let us break down the important properties of maximum, circulating, and total supply.
The maximum supply of any particular cryptocurrency is the total number of tokens that can be created. For example, the maximum supply of BTC is limited to 21 million. The Bitcoin system has a hard limit that assures that if the overall amount of coins reaches 21 million, no more will be "mined."
The circulating supply, on the other hand, is the total number of tokens in circulation that may be purchased, traded, or otherwise transacted with. This quantity is always less than the whole supply, although it may sometimes equal the maximum supply.
The following is the formula for estimating the circulation supply:
Circulating Supply = Market Cap / Price
For example, at the time of writing, the market cap of BTC is $546,464,240,154, with each token costing roughly $28,262 and a circulating quantity of 19,357,000 BTC tokens.
The total supply is the sum of the maximum collection and any tokens that have been generated but have yet to be distributed. Because it includes coins subject to a lockup or vesting period after a private sale or an ICO, this figure is often more significant than the number of tokens in circulation.
The maximum supply is the top limit, while the circulating supply is the number of currently circulating tokens. The total supply comprises the maximum and any more tokens that have been created but have yet to be delivered.
A growing number of individuals are turning to cryptocurrency as a source of passive income, but with so many alternatives, how do you choose where to invest your money? The token supply is an essential factor to examine since it might affect the token's value over time.
Consider the difference between Bitcoin, which can never have more than 21 million tokens in circulation, and Dogecoin, which may produce infinite tokens and now has over 140 billion in circulation. One reason Bitcoin's value has soared while Dogecoin continues to struggle is the fundamental difference in token supply between the two.
Even though token quantity is essential when deciding whether to invest in a cryptocurrency, more is needed to make correct price predictions. So, besides the quantity, it's important to think about market value and the number of trades.
For example, if there are a lot of tokens but the market cap and trade volume are low, this could mean that there is little demand. It could be because more people need to use the project, trust it, or know about it. It is common for startups to be in their early stages, so before you invest in them, you should learn a lot about their history and roots.
On the other hand, a high market capitalization, trading volume, and a limited number of tokens could mean a lot of future demand and growth potential. Also, coins with a bigger market cap tend to be less unpredictable, which makes them a better purchase.
These things are important signs of a project's legitimacy, so do your homework before putting money into any digital product to save yourself some stress.
Also, depending on tokenomics, different factors could decrease or increase the amount of a token, which would change its value. What things can change the number of tokens?
Some cryptos have a feature called "burning" coins. It means that certain digital currencies are sent to an address called a "dead wallet," from which they can never be taken back. It limits the amount of cash in circulation, which makes the token more valuable because it is harder to get.
Some digital currencies have limited units that can't be added to, while others may increase the number of units over time. On the other hand, the inflation rate is the opposite. The inflation rate for a coin is the rate at which the number of coins in circulation grows over time.
For instance, Bitcoin's current growth rate is 4%, which means that the total amount of Bitcoin will go up by 4% every year. If the inflation rate is higher than the rate at which new money is made, the value of the money goes down.
Staking or locking is a third well-known practice that could affect the price. Some cryptos require users to "stake" or lock up their tokens before joining network activities (like confirming transactions or getting benefits). Due to less money moving around in the market, this could briefly lower the number of tokens in circulation while raising the value of each token.
So, token distribution, demand, and market capitalization depend on all cryptocurrency supply indicators. They affect bitcoin prices and are crucial for investors evaluating a business.
Disclaimer: The information provided in this response is for general informational purposes only and should not be considered as financial or investment advice. The cryptocurrency market is highly volatile, and investing in cryptocurrencies carries a significant level of risk. The value of cryptocurrencies can fluctuate greatly, and there is a possibility of losing your entire investment.It is essential to conduct thorough research and carefully consider your financial situation and risk tolerance before making any investment decisions. It is recommended to consult with a qualified financial advisor or professional who can provide tailored advice based on your individual circumstances.
