There are many ways to understand cryptocurrency with limited supply. Some are market capitalization-based, whereas others are based on trading volume. In any case, it’s essential to understand the different facets of these coins to make the most informed decisions when it comes to investing.
Limitation of Cryptocurrency Supply
A limited cryptocurrency supply is one of a cryptocurrency’s most important aspects. It keeps cryptocurrency valuable and rare. Bitcoin, for example, has a maximum supply of 21 million coins. The reason behind this limit is based on the money supply replacement theory. Satoshi Nakamoto, the creator of Bitcoin, set this limit to make it more valuable.
There are roughly 10,000 cryptocurrencies in circulation today, and the supply of each coin is essential for setting prices in trading platforms like OKX. It’s a well-known fact that the more scarce a coin is, its value should be higher. However, the supply of a particular coin may be so limited that it’s impossible to quantify it. For example, the bitcoin cash coin has a maximum supply of twenty-one million coins, whereas Litecoin and ripple have eighty-four million.
Market Capitalization
When calculating the market capitalization of cryptocurrencies with limited supply, it’s essential to understand how to interpret the value of each coin. In general, it’s best to use the “circulating supply” instead of the “total supply” to determine the value of a coin. This method is analogous to that of using public float.
The circulating supply is the number of coins in circulation, also known as “tokenomics.” In the context of cryptocurrencies, the distribution and quality of crypto tokens are essential to determining the market cap of a cryptocurrency. Bitcoin, for example, has a limited supply of 21 million coins. A high level of scarcity can lead to hoarding and reduced circulation, negatively affecting the coin’s price.
Cryptocurrencies with a limited supply are often more expensive than those with a higher circulating supply. However, a higher total market cap for a cryptocurrency will often reflect a more favorable price point.
Trading Volume
Trading volume is an essential metric for determining the liquidity of a cryptocurrency. It measures how much has been traded in a specific time frame. It is also a good indicator of the market’s interest in a particular crypto project. Higher volumes indicate a greater likelihood of the asset being traded quickly and frequently.
Using volume to predict future price volatility is a crucial way to make money in cryptocurrencies. A large volume indicates high interest in a specific coin, while a small volume indicates low interest. This means the price of a cryptocurrency may go down shortly.
Floating Supply
Floating supply is the amount of a particular cryptocurrency available to the general public. This amount fluctuates as the price of a particular currency rises or falls. This fluctuation can cause consumers to stop spending or hoard money to buy more later. In turn, this can cause the economy to suffer. Ultimately, this problem could make it difficult for cryptocurrencies to achieve mainstream adoption. Fortunately, there are several ways to calculate the amount of a cryptocurrency’s float supply.
The first way to calculate the circulating supply of a cryptocurrency is to compare it to the circulating supply of a publicly traded company. A cryptocurrency’s circulating supply measures the number of coins available for trade and helps calculate its total market capitalization. The second way to view the circulating supply of a cryptocurrency is as a way of measuring how much demand is out there for a particular coin.
Total Supply
The circulating supply of a cryptocurrency is the number currently available for trading. The total supply is the number of coins in existence, but this number does not include burned coins. This amount is sometimes referred to as the “max supply” – the total amount of coins that can ever exist.
Since Bitcoin has a fixed supply of 21 million coins, it is implausible that there will ever be more than that. On the other hand, Ethereum has a continuous flow of new assets. These two types of cryptocurrencies are fundamentally different, but they are both based on the demand and supply principle. Regardless of the type of cryptocurrency you choose, you should understand how limited supply can affect the price.