Cryptocurrency has seen a massive rise in popularity and value since Bitcoin’s creation in 2009. But what do you need to know about the cryptocurrency circulating supply before you invest?
One of the most important concepts that you need to understand when it comes to cryptocurrencies is their supply. The supply of any cryptocurrency consists of two main components: the maximum amount of tokens available and the circulating supply.
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What is Cryptocurrency Circulating Supply?
The circulating supply of a cryptocurrency is the number of coins that are available for trading dompet json ethereum. The circulating supply represents the amount of coins that are actively being traded, as opposed to coins that are not being traded at all.
A high circulating supply can indicate a healthy market for a cryptocurrency, as it shows that there are plenty of coins available for trade.Supply and DemandThe price of any cryptocurrency is directly affected by the demand for it—that is, how much people want to buy or sell it.
The more people who want to buy, the higher the price will go; the more people who want to sell, the lower the price will go.Because cryptocurrencies are decentralized, anyone can create them (unlike fiat currencies) and anyone can trade them, so there’s no single person or entity controlling their prices.
The circulating supply is often discussed and analyzed by investors as a way to assess whether a particular coin or token is a good investment; this means that people often talk about “the market cap” of a coin based on circulating supply—no one ever talks about “the market cap” of a coin based on total supply.
The reason for this distinction is two-fold:
First, the total supply is often much higher than the circulating supply.
Second, most people aren’t interested in buying up all the coins for their own personal collection—they’re interested in buying up some percentage of all coins available on the market, both current and future.
Defining Supply
Supply is the total amount of a currency or asset in existence, typically broken up into different classes according to their values and/or status. For example, there’s the number of bitcoins mined and circulating (which may change as people lose them or move them around) and then there’s the number of bitcoins that are being held in reserve by its owner (which doesn’t change).
How Circulating Supply Operates
Crypto markets are notoriously volatile. Circulating supply is a way to understand a coin’s volatility and predict its future price. It’s calculated by dividing the current market cap of a cryptocurrency (the total value of all of the coins in circulation) by its total supply (the total number of coins that will ever be in circulation).
In crypto, this includes coins held by developers, founders, and early investors, but also those held by exchanges and wallets. They’re not part of the money supply that’s available for trading every day—in fact, most are held off the market for long periods or in hardware wallet that aren’t connected to an exchange at all.
The reason it’s important to know this can be explained by how supply and demand work together to determine coin cost, for example, the increasing TERRA LUNA price. The more LUNA coins as well as its trading pair LUNA USDT there are in public circulation, the less each individual coin is worth (because there are so many coins out there).
The less each coin is worth, the less people will want to spend them. The less people spend them, the more they lose value, because they’re not being used as a currency.
Methods Of Increasing The Circulating Supply
There are numerous methods of increasing the circulating supply of coins and notes. Some of these are:
- The minting of new coins/issuance of new notes.
- Removing older coins/notes from circulation through destruction.
- Exchanging older coins/notes for new ones at the bank (redemption).
- Returning old notes to the bank after they have been used to purchase something (deflation).
- Public banking (A system in which the government prints dollars, then lends them to us at some fixed interest rate.)
- Quantitative easing (A system in which the government prints dollars and buys up private assets.)
- Fractional reserve lending (A system in which banks can lend out more money than they actually have on deposit.)
- Making money illegal (This one doesn’t really count, but it could be argued that this is a method of increasing supply by making something rarer, rather than increasing the supply itself.)
How To Calculate Circulating Supply
It’s important to understand circulating supply because it can help you determine how many coins are available to buy or sell at a given price. If there’s high demand for a coin, but not enough available, the price will likely go up.
The circulation supply is the number of coins that are currently being traded and spent—these will be a lower number than total possible supply because some coins are either being held back or used as payment in exchange for goods or services.
The formula for calculating circulating supply is pretty simple: CIRCULATING SUPPLY = TOTAL SUPPLY – HELD BY GOVERNMENT (if applicable) – HELD BY INVESTORS AND MINERS
It’s important to note that while this formula is accurate, it neglects coins being held privately by individuals who aren’t ready to sell or trade yet. This means that it’s possible for circulating supply to be lower than what you’re seeing listed on coinmarketcap.com or other sites that calculate circulating supply based purely on current exchange data.
