The total supply of a cryptocurrency refers to the sum of the circulating supply and the coins locked up in escrow. In this smart contract, a third party temporarily keeps an asset until a particular and the agreed condition is met. The maximum supply is the upper limit on the number of tokens that can be created, while the circulating supply is the number of tokens that exist and are available for trade in the market.
All the cryptocurrency supply metrics are crucial for determining token distribution, demand and market capitalization. They can impact the price of a cryptocurrency and are essential criteria for investors who want to assess a project's worth.
Have you been finding it difficult to make a better investment decision by evaluating the token supply of a project? We make it easy for you by giving an understanding of what token supply is.
Circulating Supply
Circulating supply refers to the number of tokens in circulation and available for trade at any given time. It's used to define the market capitalization of crypto, accounting for the size of its economy.
Market capitalization is calculated by multiplying the price per unit by the number of all existing coins in a blockchain, including lost or confiscated coins. Realized market cap, a sub-metric, calculate the price of a coin when it was last moved.
Some cryptos have a finite supply and are only increased through mining, while others can be increased through immediate minting by developers.
Circulating supply can also decrease through burning and destroying coins by sending them to an inaccessible wallet.
Total Supply
The total token supply is the sum of the circulating supply plus un-distributed mined coins. Coins locked for staking rewards or reserved for future distribution are included.
Coins burned or permanently locked in an address are not included in the total token supply. Increasing the total token supply is possible based on the crypto protocol's rules.
For example, Bitcoin's total supply is fixed at 21 million, while other tokens' total supply can be changed by developers modifying the protocol's supply rule in the smart contract.
Maximum Supply
Maximum supply is the total number of tokens that will ever be mined for a cryptocurrency. Bitcoin has a cap of 21 million, while others may have a cap or no cap at all.
Cryptocurrency coins or tokens can be easily compared to publicly traded shares in the stock market, as their price reflects supply and demand conditions. The more coins exist, the more demand there needs to be for a price to increase. When a cryptocurrency reaches maximum supply, it becomes scarce, increasing-price if demand exceeds supply. On the other hand, if the demand for a cryptocurrency is low but has an ample supply, its price may drop.
Bitcoin's total supply is cut in half every 4 years through halving. This makes it a deflationary cryptocurrency, reaching a max supply of 21 million in 2140.
Takeaway
Investing in crypto requires research on the ratio between circulating and total supply. Avoid projects with less than 50% supply in circulation. Dilution can decrease potential gains over time.
If the circulating supply increases, the market cap does not always follow. Market cap retention requires equal cash injection.
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