The unspoken relationship of the market cap and total circulation supply
There’s nothing we want more than having our investments in crypto projects soar beyond our wildest dreams, but to have this, there are a lot of considerations at play, and one of them is the circulation supply of the token.
Supply and demand also come into play when it comes to crypto. When there is a great demand and supply is minimal, the price for each commodity is high. However, with the same demand but the supply is tremendous, it will not make any significant change. This is why there’s a need for us to consider the circulation supply as it also dictates the future price or what for us to expect regarding the feat its price can reach.
Circulation supply and the inflationary, deflationary, and fixed models
A crypto project may follow three types of models: inflationary, deflationary, and fixed.
When we talk about inflationary tokens, this means that over time, their circulation supply increases. An example would be Dogecoin (DOGE). Dogecoin does not have a hard cap. This means it has no supply limit and will only increase over time. The initial supply of Dogecoin was set at 100 billion. But when all these tokens have been mined, the supply grows an additional 5 billion each year.
On the other hand, deflationary tokens are those tokens that have a burn mechanism for their tokens. With this, its circulating supply will reduce over time; thus, an expectation that its market price will inevitably soar in the future. This is popular with meme tokens. Generally, it has a burn address no one has access to, which serves as a vault that cannot be opened as the keys have been thrown into the sea. An example of this is Shiba Inu. It has a 1,000,000,000,000,000.00 supply at first, but 41% of it has been burned as of writing. Without any tokens removed from the total circulation supply, it would not have reached the success it has now.
With fixed supply tokens, like Bitcoin (BTC), it does not have a burn mechanism for each transaction of the token, and no other coins can be minted whenever its developers want. It simply means that the initial supply will never change unless you or someone sends their BTC to a dead wallet.
BTC only has a token supply of 21 million. This is the primary reason why its price reached $69,000 per token months ago and the reason why investors are eager to accumulate their BTC hodlings, its rarity, and limited supply. In view of the supply and demand concept, BTC is a gold pot as not much is available in the market, and the craze is still ongoing.
Also Read: Ask the Orb: The importance of D.Y.O.R.
Expectations must be at bay
When you invest in a crypto project with a 1,000,000,000.00-circulating supply, its market cap must be 1,000,000,000.00 for the price to be exactly 1 dollar. However, when the token you choose has a supply of 1,000,000,000,000,000.00, you cannot expect the price to become 1 dollar soon, considering that the estimated accumulated money in the world is only 6.6 trillion dollars.
This is where the models kick in. If the model is inflationary, the more reason that it will never reach the 1-dollar mark. If it is fixed, it will take decades for the world’s money to reach that feat. However, if the model is deflationary, there can be a chance to reach such an amount.
For example, the current circulating supply of Shiba Inu is approximately 550,000,000,000,000.00. Its market cap is at 20 billion as of writing. If the total market cap reaches 100 billion, or the current market cap of BNB, and 549,900,000,000,000 of SHIB tokens has been successfully burned, then the price could reach a dollar. That’s 99.98% of SHIB to be burned, so reaching a goal of 1 dollar per token could take a long while.
Choosing the best model based on your risk appetite is essential to meet your profit goal. Before investing your money in any crypto project, token supply should be one of your considerations in choosing one. It is fundamental that you first understand how the supply and demand operate and how the total supply affects your money’s growth.