Understanding Crypto Circulation and Its Effect On Crypto Prices

The most important feature of blockchain technology is that it provides an authoritative, unchangeable, and transparent record of transactions and data, which is most typically used to record the ownership of units of Bitcoin. How many coins circulate in an economy is critical to defining measures like supply, demand, and market capitalization for a cryptocurrency. Bitcoin (BTC) and other similar cryptocurrencies are valuable because we know exactly how many of them are in circulation at any given time.

Given that they are limited, it is important to understand their functionality before using them in contests like the Hate Race crypto game. However, things get a little muddled when you get deeper in. Although both phrases are interchangeable, distinguishing between circulating supply and maximum or total supply is essential if you want to know how big the cryptocurrency market is. So, let’s get started.

Understanding Circulating Supply

It is possible that the total number of cryptocurrency coins or tokens in circulation will rise or fall over time. New coins can be generated over time if the cryptocurrency is mineable. The supply of a centralized token can be arbitrarily expanded by the developers at their discretion through the process of instantaneous minting.

The supply can also be reduced, either intentionally or by mistake, such as by sending coins to a non-recoverable address or losing access to a wallet where funds are held.

The network as a whole does not know how much of the overall supply is currently in use, making the circulating supply measure an imprecise approximation.

Even though the circulating supply of Bitcoin (BTC) should theoretically be over 18 million coins, it is estimated that roughly 4 million BTC have been permanently lost, leaving the genuine circulating supply closer to 14 million. When it comes to supply, it’s important to distinguish between circulating and total supply.

Total Supply

There are a number of tokens that exist on the blockchain but aren’t currently in use. This is known as the total supply of a cryptocurrency. It is possible that a cryptocurrency project will generate far more crypto than is needed at the time of the introduction of a new token or coin.

Once a certain threshold has been attained, or a date has passed for a certain reward, the coin may exist on the blockchain, but it may not be possible to begin earning it until that threshold has been met or that date has passed.

This means they’ve been made, but no one has ever seen them in their pockets; thus, they’re not in circulation. When a developer mines large amounts of coins before the blockchain launches but does not distribute them to anyone, they are known as “premines.” These coins may also be subject to vesting periods. Burned coins are not counted against the total supply. Tokens that have been sent to a wallet that no one has access to have been permanently removed from circulation.

Maximum Supply

There’s a maximum supply of coins and tokens. Bitcoin supply is 21 million. Once the number of Bitcoins in circulation exceeds 21 million, no more may be “mined.” Some coins aren’t exhausted. Ethereum has no upper limit on ETH, but only 18 million can be minted per year depending on block discovery times and rewards.

Some cryptocurrencies’ supply fluctuates, making it difficult to estimate their maximum supply. A stablecoin released on the Terra ecosystem, for example, uses LUNA to sustain the price of UST, a US dollar-pegged stablecoin that is minted and burned to maintain that price. However, since the introduction of EIP-1559 in August 2021, Ethereum has started burning a portion of transaction fees instead of giving them to miners in their entirety.

Why Are These Metrics Important?

When the circulating supply is multiplied by the per-unit price, investors may better comprehend the market value of various cryptocurrencies (also known as the market cap), which is the total value of the market. For this, simply multiply the current market price of a coin by the circulating supply.

That means that if there are 20 cryptocurrencies in circulation, and the current market value of each coin is $500.00, the market cap is $10,000. Market cap is essential since it may be used to estimate the overall risk and stability of a cryptocurrency. If the market cap of a cryptocurrency is higher than $10 billion, it is generally considered to be a more stable investment because it is less susceptible to market volatility.

Cryptocurrencies that have more than $1 billion in market capital are less susceptible to severe movements, such as the sale of tokens held by a large number of holders. If you’re thinking about making a crypto investment, you should be aware of the current circulating supply.

Conclusion

When investing in a cryptocurrency ICO, keep an eye out for the circulating supply. Your wallet will be all the healthier in a few months if the circulating supply is limited.