Wednesday, June 29, 2022

What Does Circulating Supply Mean In Crypto

What Is The Difference Between Circulating Supply Total Supply And Max Supply

The Complete Idiot’s Guide to Crypto: Market Cap & Circulating Supply

Circulating Supply is the best approximation of the number of coins that are circulating in the market and in the general public’s hands.Total Supply is the total amount of coins in existence right now .Max Supply is the best approximation of the maximum amount of coins that will ever exist in the lifetime of the cryptocurrency.

Intentional Burns To Increase Value

Publicly traded companies buy back stock to reduce the number of shares in circulation. In general, this practice is intended to increase the value of the shares while increasing the company’s financial performance. Unfortunately, it doesn’t always work as intended and sometimes has the opposite effect. Shares are also repurchased as a method of controlcompanies can use this tactic to prevent a hostile takeoverthe act of buying shares to gain a majority and thus ownership of the company.

There is no evidence yet that burning cryptocurrency tokens increases the value of that specific cryptocurrency. The action can influence investor and user sentiment which would have more of an effect of driving prices up and down.

It is thought that tokens are burned to achieve similar results. By reducing the number of coins in supply, the entities doing the burning hope to make the tokens more valuable and less attainableworking to control the coin supply and maintain or increase the value of their own holdings. Some cryptocurrencies developers intentionally burn tokens to accomplish these tasks.

What Is Cryptocurrency Market Capitalization

Crypto market capitalization is the total value of a cryptocurrency. Where stock market capitalization is calculated by multiplying share price times shares outstanding, crypto market capitalization is calculated by multiplying the price of the cryptocurrency with the number of coins in circulation.

For example, Bitcoins market capitalization is found by multiplying the current number of coins in existence over 18 billion with Bitcoins price at a given time. As Bitcoins price fluctuates, which it does frequently, so too does its market capitalization. In the past few weeks, Bitcoins price has been between around $45,000 to $55,000, which translates into a significant range in market capitalization:

  • $45,000 x 18.8 million = $846 billion
  • $50,000 x 18.8 million = $940 billion
  • $55,000 x 18.8 million = $1.034 trillion

For comparison, heres how Ethereum stacks up against Bitcoin in market cap: At a price of $3,000 and circulation of about 117 million, Ethereum has a market capitalization of about $351 billion. Even though there are many more Ethereum coins in circulation, Bitcoins value makes its market capitalization larger.

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How Is The Circulating Supply Determined

Over time, the circulating amount of coins for a certain cryptocurrency can increase or decrease.

For example, when talking about Bitcoin, the circulating supply is bound to increase until all 21 million coins are mined and in circulation. This gradual increase of coins is programmed into the Bitcoin network by design, allowing new coins to be created every 10 minutes until the total supply is mined.

On the contrary, cryptocurrencies also implement planned reductions in their circulating supply, to hopefully increase the value and scarcity of their coins or tokens. This is done through what is more commonly known as a coin burn, a process that permanently removes coins from the market at specific timeframes.

One of the most popular examples of this reduction method is BNB, the native cryptocurrency of Binance. The company burns a set amount of coins every quarter until they have burned a total of 100.000.000 coins, reducing their total supply in half.

What Is The Good Circulating Supply

Circulating Supply, Total Supply And Max Supply Explained ...

Anywhere between 60 Million 150 Million is a good circulating supply for any cryptocurrency. Take a look at the chart on Coinmarketcap.com. All the currencies having 150 Million or less in circulation have appreciated so quickly in priceor as they say in crypto world, gone to the moon.

Look for the circulating supply when you invest in any cryptocurrency ICO. The more petite the circulating supply is, the more sexier it is going to look in your wallet in a few months.

Read Also: Can You Sell Bitcoin For Cash

Banking On Fixed Supply: What It Means To Investors

Purchasing a cryptocurrency with a fixed/limited supply is an effective way to profit from the future value.

When dealing with a cryptocurrency with a finite supply, the price surge is almost always guaranteed.

Investors understand the importance of high demand and low supply. Despite them heavily investing in these assets, the overall supply does not always meet the rising demand.

Investing In Cryptocurrencies With A Fixed Supply

Merely choosing a cryptocurrency with a fixed supply does not guarantee you profits. There are some additional factors you need to consider:

The cryptocurrency should have a rising demand.

Secondly, you should consider the time the cryptocurrency would exhaust the supply. Therefore, the coin you want to invest in should have a feasible halving cycle.

For example, Bitcoin halving is expected to continue until the year 2140.

It means the miners will receive some reward for mining until that time. Of course, the amount will be smaller than what they get now.

Until that point, the miners who add new coins as block rewards will control the price. By this logic, Bitcoin would carry an exceptionally high value by 2140.

Also Check: Where Does Cryptocurrency Get Its Value

Is Market Cap The Best Way To Measure The Popularity Of A Cryptocurrency

Even though the market cap of a project is still seen as the most important indicator of relevancy, the concept behind this is often subject to criticism. The reason is that the market cap of a cryptocurrency more or less reflects the popularity of a coin over a longer term.

Large-cap cryptocurrencies are generally considered to be safe crypto investments. These are companies with a market cap of more than $10 billion. Investing in coins with large market capitalisation is usually a conservative strategy. These coins are likely to be less volatile than other cryptocurrencies but still more volatile than traditional assets like stocks.

Mid-cap cryptos are more volatile but also have a lot more growth potential than large-cap cryptocurrencies.

Small-cap cryptocurrencies are often extremely volatile and considered a highly risky investment, albeit sometimes with a lot of potential growth. However, be aware that they may also crash, literally from one minute to the next.

As always with cryptocurrencies, we recommend to do thorough research before investing and consider all vital factors involved. For instance, market cap as a metric doesnât say much about actual trading volumes over the last couple of hours. Therefore it makes sense to also check Coinmarketcap for the 24-hour trading volume that a cryptocurrency has on different exchanges over a reasonable period and other essential criteria before investing.

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Why Is The Circulating Supply Used In Determining The Market Capitalization Instead Of Total Supply

Market Cap and Circulating Supply Explained for Cryptocurrencies

We’ve found that Circulating Supply is a much better metric for determining the market capitalization. Coins that are locked, reserved, or not able to be sold on the public market are coins that can’t affect the price and thus should not be allowed to affect the market capitalization as well. The method of using the Circulating Supply is analogous to the method of using public float for determining the market capitalization of companies in traditional investing.

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Fully Diluted Market Cap: What Is The Difference

As discussed, the market cap is calculated by multiplying the coins price by the circulating supply. That means it only relies on the supply that is publicly available at a certain moment.

The thing is, the circulating supply does not show the number of coins that are locked or reserved by the issuers or even havent been minted. If these coins will be added to circulation one day, they could dramatically change the cryptocurrencys market value.

A fully diluted market cap relies on the coins maximum supply, thus on the final amount of coins that will ever be issued. If the coin has an infinite max supply, then the total supply metric is used to calculate FDMC. Heres the formula:

FDMC = MAX SUPPLY x CURRENT PRICE

Example:

What Is Circulating Supply In Cryptocurrency And How Its Calculated

Circulating supply is a common term that we often get to hear when it comes to cryptocurrencies and other financial markets. But not many know about it or how the circulating supply gets calculated.

As we all know that most of the crypto coins have a limited number of available coins which are circulated in the market. This plays an essential role when it comes to determining the market cap of a specific coin.

However, when it comes to circulating supply of cryptocurrency it can increase or decrease from time to time.

But before I get into what is circulating supply, lets know what supply means in cryptocurrency. So here we go:

Also Check: What Are Blockchains In Cryptocurrency

How To Use A Crypto Weighted Market Cap Strategy

A weighted market cap strategy can help investors even if they are only investing in Bitcoin and Ethereum, says Jeremy Schneider, the personal finance expert behind Personal Finance Club told us recently.

A weighted market cap strategy means you put a proportional investment into each asset based on market cap. So if you take the total market capitalizations of both Bitcoin and Ethereum, then divide out the percentages each individual crypto holds in that total, youd end up with about 71% Bitcoin and 29% Ethereum.

This approach can help you determine how to invest $100 in the two biggest cryptocurrencies: Youd invest about $71 in Bitcoin and $29 in Ethereum.

While the experts say you shouldnt bother with other altcoins , the same philosophy can in theory be used for whatever you wish to include into your portfolio. Just allocate how much of a total investment amount you wish to put into each coin based on its proportional market capitalization. At the very least, this ensures you are putting much smaller amounts in other cryptos, and larger amounts in the relatively safer Bitcoin and Ethereum.

Shows The Value Of Crypto

What Does Crypto Market Cap Mean : What Does Market Cap ...

Similar blockchain projects may have completely different market caps. Despite the fact that they operate in the same field or solve the same problems, their value differs.

Like stocks, cryptos can be divided into 3 categories according to the size of market capitalization: large-, medium- and small-cap coins. Knowing the size of market capitalization allows us to compare different projects.

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Volume 24 Hour Trading Volume

Volume is the total number of crypto currency thats been traded in the last 24 hours. 24 hour coin volume is the second most important factor to consider when you are trading alt coins. When there is a pump going to happen for a coin then the first thing that starts showing signal is its Volume. The price follows as the volume of the coin goes up.

If the volume is more then it means then the coin is active and more people started to show interest in buying and selling. It will be easy for you to trade if the volume is more.

What Will Happen If The Circulating Supply Reaches Max Supply

As we have defined earlier, circulating supply is the number of coins available in the market, while max supply is the total amount of coins within a network, and no new coins past this figure can be introduced.

Suppose the circulating supply rises to match the max supply. In that case, typically, the networks revert to using transaction fees as compensation to the validators and token holders who participate in network governance.

In Bitcoin, for example, the miners currently get compensated for their efforts with newly issued BTC coins and transaction fees.

However, the rate of issuing new coins keeps falling while the value of transaction fees rises. The end goal is to completely replace the new-coin issuance mechanism with transaction fees when the circulating supply matches the max supply of 21 million coins.

Also Check: How Many Bitcoins Are There Now

How To Calculate Circulating Supply In Cryptocurrency

So far you know that over a period of time, the circulating amount of a specific crypto token would increase or decrease depending on different factors.

For instance, Bitcoin has a maximum supply of 21 million. And the circulating supply will reach up to 21 million.

The number of maximum supply is coded into the Bitcoin network. And the network allows the creation of new coins every 10 minutes until the total supply is mined.

In addition to that, cryptocurrencies also implement different reductions intentionally for their circulating supply. So the value of the token would increase from time to time.

This is done by various methods. One popular method is coin burn which is a process that will permanently remove coins from the market at a specific time frame.

For instance, one popular example of this reduction would be BNB. BNB is the native cryptocurrency of popular exchange Binance. The exchange burns a set of amount of coins every quarter until they have burned a total of 100,000,000 coins. By doing so, they reduced the total supply of BNB coins by half.

Why Is Market Cap Important

â ï¸? Crypto Market Cap, Circulating Supply & AVOIDING Bad Coins Distribution Models

Price is just one way to measure a cryptocurrencys value. Investors use market cap to tell a more complete story and compare value across cryptocurrencies. As a key statistic, it can indicate the growth potential of a cryptocurrency and whether it is safe to buy, compared to others.

To demonstrate, lets compare the market cap of two fictional cryptocurrencies.

  • If Cryptocurrency A has 400,000 coins in circulation and each coin is worth $1, its market cap is $400,000.

  • If Cryptocurrency B has 100,000 coins in circulation and each coin is worth $2, its market cap is $200,000.

  • Even though the individual coin price of Cryptocurrency B is higher than Cryptocurrency A, Cryptocurrency As overall value is double Cryptocurrency Bs.

Still, its also important to note that many cryptocurrencies market cap can swing dramatically due to their volatility.

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Use In Illegal Transactions

Bitcoin held at exchanges are vulnerable to theft through phishing, scamming, and hacking. As of December 2017, around 980,000 bitcoins have been stolen from cryptocurrency exchanges.

The use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, law enforcement, and the media. Bitcoin gained early notoriety for its use on the Silk Road. The U.S. Senate held a hearing on virtual currencies in November 2013. The U.S. government claimed that bitcoin was used to facilitate payments related to Russian interference in the 2016 United States elections. However, a 2021 study led by former CIA director Michael Morell showed that broad generalizations about the use of bitcoin in illicit finance are significantly overstated and that blockchain analysis is an effective crime fighting and intelligence gathering tool.

Several news outlets have asserted that the popularity of bitcoins hinges on the ability to use them to purchase illegal goods. Nobel-prize winning economist Joseph Stiglitz says that bitcoin’s anonymity encourages money laundering and other crimes.

Why Is Circulation Supply So Important

Its hard to overestimate the importance of the circulation supply. It affects the market capitalization of your project and rank on coin trackers. A high rank on trackers, in turn, automatically attracts potential buyers, users, and partners into your project. Moreover, a high circulation supply inspires current and future token-holders to keep your cryptocurrency.

Its important to note that thecirculating supply only works when trackers display it. So it doesnt matterwhat you state on your project website about total and circulation supply.

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Understanding Cryptocurrencies With Limited Supply

The Bitcoin supply is limited to 21 million. In other words, it is deflationary by nature. As a result, not more than 21 million Bitcoins can ever be mined or be in circulation at any given moment.

Other tokens, like Ethereum, have a constant flow of new assets added to the ecosystem, which makes them inflationary.

Most cryptocurrencies follow a demand and supply principle that determines their growth.

So, the question arises: Why are people investing in cryptocurrencies with a fixed/limited supply?

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What Does Market Cap Mean Cryptocurrency / Coinmarketcap ...

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All guest authors opinions are their own. Liquid does not endorse or adopt any such opinions, and we cannot guarantee any claims made in content written by guest authors.

This content is not financial advice and it is not a recommendation to buy or sell any cryptocurrency or engage in any trading or other activities. You must not rely on this content for any financial decisions. Acquiring, trading, and otherwise transacting with cryptocurrency involves significant risks. We strongly advise our readers to conduct their own independent research before engaging in any such activities.

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