ZoneBitcoin EditorialIt's a metric that we rarely look at but which can indicate a lot about the future price of a cryptocurrency just like the FDV or market cap. New investors entering the world of cryptocurrencies sometimes have difficulty understanding market capitalization and other crypto metrics.
Even if at first glance and fundamentally, it is the law of supply and demand which will determine the value of a crypto. Thus, the less supply there is and the more demand, the more the value of the token will increase. It's mathematical at this level.
And, although there are other factors, circulating supply (in all its forms) is an essential element to take into account.
We will focus here on what the offer means and what impact it has on the future price. More generally, we are therefore interested to the supply structure of a crypto.
Understand the concept of supply (offer)
At first glance, if for example, a token has a circulating supply of 10 billion coins (we are far from the 21 million bitcoins!), you can wait years before becoming a millionaire with it.
Moreover, for many people, the price of bitcoin is exploding largely thanks to thelimited supply of bitcoin. By definition, it is therefore a deflationary crypto. This is something that we cannot understand if we do not understand what is going on with the supply in circulation.
It's not like that for all other cryptocurrencies, know that. There are many cryptos with billions of tokens in circulation.
There are also cases like Ethereum which have constant streams of new assets added. This makes cryptos inflationary in this case.
It is often said that between 60 million and 150 million is a “good” offer in circulation given the extent of the market currently.
When you want to invest in crypto, take a good look at the circulating supply. The lower it is, the more the price will be able to reach the moon. This is what we say in theory, and now let's see the reality behind all this.
Understand the difference between circulating supply, total supply and maximum supply.
Generally speaking, coin supply is one of the most important factors that will affect market capitalization. And, it is also the least understood factor among beginners.
➡️ Circulation Supply: The supply in circulation
This is the amount of coins or tokens that have been mined or generated. This is the approximate number that is currently in the hands of the public and circulating in the market.
➡️Total supply
This is the quantity of coins already in circulation + the new coins mined. Total supply is the total number of coins that currently exist, but not all of them are circulating. For several reasons, some coins are for example locked and not sold on the public market, which does not affect the price of the coins. The total supply is normally equal to or greater than the circulating supply.
➡️ Maximum Supply
This is the maximum number of coins that will ever exist for a cryptocurrency. There will be no more supply once a coin reaches its maximum supply cap, as this is the maximum quantity that can be mined or produced. The famous 21 million bitcoins constitute the maximum supply of bitcoin.
➡️ Infinity Supply
There are coins with an infinite supply like Ethereum or dogecoin. The offer is unlimited but it is issued by “Time preference”. In the times we are in, the amount of ETH available will be low. The token release rate decreases over time, which can also give it value.
Where are the offers for cryptos listed?
Websites like CoinMarketCap or Coingecko tell you which metrics you need. You will easily find all the types of offers that we have just seen. You will also find this information on crypto white papers.
Most cryptos follow the law ofsupply and demand to determine the price.
We can then ask ourselves how to invest in cryptocurrencies with fixed or limited offers?
There is a strong relationship between the current value and circulating supply of a cryptocurrency. This is how we calculate the market cap and this gives us a good indication for measuring the strength and relevance of a given cryptocurrency.
Should you invest in crypto based on total supply?
This is ultimately the ultimate question to which we would like to have a simple answer. Something that doesn't exist, you understand.
Some investors choose to invest in cryptos according to the fixed total supply. It's an effective way, let's say it, to benefit from the future value of a crypto. In fact, mathematically, when a crypto has a defined total supply, a price surge is almost always guaranteed.
This is where the law of supply and demand comes into full effect. There is limited supply and growing demand; this can only increase the price of crypto.
Conversely, a crypto that continually issues tokens (typically dogecoin) has less chance of seeing its token take on a grandiose value. Demand always finds its supply.
That said, just because you are going to invest in a crypto with a fixed supply does not mean that you will necessarily make a profit.
Indeed, for this to happen, crypto would still need to have growing demand.
Some examples of fixed total supply cryptocurrencies
Of course, we are not going to mention Bitcoin yet because it is the best-known fixed supply currency. Demand is exploding while supply is limited (always more limited with halvings).
Here are other cryptocurrencies with a fixed total supply and therefore in the theoretical idea, deflationary.
Le Litecoin (LTC) which derives from Bitcoin at a fixed total supply of 84 million (of which approximately 75% is already in circulation).
Chainlink (LINK) with a total supply set at 1 billion.
Cardano (ADA) at a maximum supply of 45 billion even though it remains one of the cryptos with the highest total supply on the market.
In the same vein, we can cite Stellar (XML) with a fixed offer of 50 billion.
Final word on Fixed Total Supply cryptos
Although some investors prefer to invest in fixed total supply cryptos, this is also not a guarantee that they will make a good investment.
It's more complex than that and if it were that easy we would all be genius investors.
Counterexamples like Ethereum which has no fixed supply and which is the second crypto in terms of capitalization have shown us the opposite.
The idea that must be remembered is that in idea, cryptos with fixed total supply still have more chances of preserving the value of their cryptos.
It is nevertheless necessary to do a more in-depth analysis and observe other criteria which will give you a better idea of determining the price.
Disclaimer: This content is for informational purposes and does not constitute financial advice. We strongly advise our readers to conduct their own independent research before committing to any investment.
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