Cryptocurrency market has expanded over the years with many investors entering the sector. It is an undeniable fact that most people invested their money in an asset without any clear knowledge about what market capitalization and available supply mean.
In crypto-investment, these two are more important that the price of an altcoin or Bitcoin considering the fact that they determine their prices. Some coins have large circulating supply while others have small circulating supply, and each plays a role in price determination. This post, therefore, throws light on circulating supply, market cap and how to calculate a price.
This refers to the coins available or circulating in the market. Circulating supply is totally different from total supply. Total supply comprises of the coins available or circulating in the market, and coins that have not been mined, or unavailable in the market. Bitcoin, for instance, has a Total supply of 21 Million, and 17 million of it has been mined.
Maximum supply is another side of cryptocurrencies that provides an estimation of the number of coins that exists in a life time. It is important to note that some coins have a fixed supply while others have an infinite supply. Bitcoin, the king of cryptocurrencies currently has an approximate circulating supply of 17 million.
The market capitalization of a cryptocurrency is the amount of demand for the asset. Normally, the size of a market cap determines how strong a cryptocurrency is. The demand for an asset drives its price higher or lower depending on the direction of demand.
Higher demand leads to a higher price. In this context, it can be said that Bitcoin has a total demand of $120 billion, Ethereum has a $41 billion demand and Ripple has $16 billion.
Calculation of Price
The price of every cryptocurrency can be calculated by dividing the market capitalization of the coin by its circulating supply. For instance, the current market cap of Bitcoin is approximately $140 billion, and its circulating supply is 17 billion. Dividing the market cap by the circulating supply gives the current price of approximately $7058 (may change anytime).
The same method can be used for any other cryptocurrency to obtain its price. Similarly, the future price of any cryptocurrency can be predicted by guessing its future market capitalization. Before investing in a cryptocurrency, these two things are to be considered. Sometimes the size of a token determines its stability.
Putting these aside, the team behind a coin and its road map should not be ignored when considering a coin for investment.