Understanding cryptocurrency coin supply

Crypto Coin Supply

A coin's supply is a key factor that many investors often forget to address during their outlook into long-term price projections. A coin may experience deflation if it has a fixed supply and inflation if it has an infinite supply. Which scenario is better? There is still a lot of debate in the crypto space surrounding both. Let's explore the meanings behind both of these terms a little further.

Maximum supply is the cap of production the coin has, no more than that will ever be circulating within the market. An example of a coin's maximum supply is Bitcoin, which has a cap of 21,000,000 coins. Other terms that you should familiarise yourself with are circulation and total supply. The former is the quantity of a coin, that is currently able to be traded in the market. Total supply is defined as the total number of coins that have been created, up until now.

The three named concepts should be your new ABC when researching any future valuations of a crypto-investment. It is also imperative to engage yourself in understanding key metrics and the lifecycle of the coin. Metrics are not hard to understand, and data is not difficult to find. The circulating and total supply of any coin will usually be declared publicly by the team within the white paper. Always remember to double-check the credibility of any sources that you use when researching any projects!

Crypto Valuations

Can digital scarcity affect crypto valuations? Yes! If the coins are continually mined or staked, with an unlimited supply, the long-term demand can decrease along with their price. On the contrary, the "uniqueness" or deflationary characteristic of certain coins can increase the price and demand from hungry investors.

With the fiat system, deflationary currencies are saved by stakeholders with the expectation of future appreciation. It is important to note that the effect of liquidity in capital markets is similar to liquidity and supply in the crypto ecosystem. Just as central banks can make yearly changes to their monetary policies, any significant increase in currency supply decreases its intrinsic value. The biggest difference comes from the fact that many governments haven't been able to remain neutral against money printing, while blockchain technology has.

Satoshi Nakamoto realised this early on, creating an alternative to the constant failures of financial systems. This fundamental difference between fiat and cryptocurrencies creates a solution to one of the worst economic paradigms in history.

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