Market Cap vs Circulating Supply

Introduction

While looking into crypto tokens or conducting your research, the most common term that one would use are the market cap of the token and how many tokens are already in circulation. This is to determine the basic overview about the market sentiment on the said token along with how the community is behaving towards it. While deep diving into the tokenomics and the founders of the token is imperative, making a note on other factors also include the total supply of the token and the value that the project is driving.

Explaining Market cap & Circulating Supply

So what exactly is a Market Cap in crypto? Market cap in crypto primarily states the total value of the coins that are present in the market. This factor is also one of the crucial one that helps in determining the rankings of coins in term of their worth. The a nutshell, the comprehension of the market cap in regards to crypto assets helps in understanding the amount of capital that has been invested in a specific crypto token. If the supply of coin is multiplied with its price; that will help in deriving the value of the market cap. The following formula is how one can calculate market cap of a token:

Market Cap = Price x Circulating Supply

Now let us take a look into what Circulating Supply in crypto means. In short, the term circulating supply simply means the number of crypto tokens or coins that are publicly available and are currently circulating in the market. However, the term circulating supply is often confused with terms like max supply or total supply. The reason being all these three factors keep count of coins in different form. While circulating supply states the coins that are currently accessible to the public; on the other hand total supply is used to quantify the number of coins that is in existence. If we look into max supply, this helps in quantifying the maximum amount of coins that can ever exist for a crypto asset. For example, max supply for Bitcoin is 21 million.

Did You Know? Max supply also include the coins that is to be mined or that will be made available in the future.

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How to calculate Market Cap?

Given the simplicity and the effective factor for risk assessment, the market cap can be a helpful metric that can be used to determine an assets worth and its potential for growth in the future. To be precise, market cap is best viewed as a crypto asset’s total tradable value.

Market Cap = Price of one token x Circulating Supply

Importance of Circulating Supply

To simplify the essence of the circulating supply in crypto, it goes with the common notion which is a reflection of the economic law of supply and demand. The more crypto assets that will be available, the less will be the value that the assets drive.

To describe circulating supply in other words, this is also where attempts of inflation control takes place. To further describe it, the difference between market cap and a fully diluted market is the difference between the circulating token supply and the maximum supply that it can have.

Circulating supply is the metric that the blockchain network focuses on, in order to manage the flow of supply and demand of the tokens, which proportionally affects the asset’s price. One example would be Binance burning BNB tokens in order to maximize the BNB token’s value while also providing a sustainable and safe long-term growth plan for the BNB ecosystem.

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Conclusion

While market capitalization can be a quick and easy way for an interested investor to estimate a crypto asset’s value as the metric helps them on conceptualising what the market sentiment is, on the other hand the circulating supply helps them in deducing the long term project trajectory. As important as these factors are, deep diving into the project whitepaper and the roadmap is equally important. Take a look at the check list for DYOR or Doing Your Own Research.

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