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            Market Cap vs Circulating Supply

            Unlocking the crypto enigma: Market Cap battles Circulating Supply dominance!

            14 Mar 2023 | 4 min read
            Marketcap vs Circulating Supply

            Table of Contents

            Toggle
            • Introduction
            • Explaining Market cap & Circulating Supply
            • How to calculate Market Cap?
            • Importance of Circulating Supply
            • Conclusion
            • FAQs
            • Does circulating supply affect market cap?
            • Is high circulating supply good?
            • What is a good volume to market cap ratio crypto?

            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.

            Read More: What is Rug Pull?

            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.

            So far, there is no Market Cap Calculator as such, but as mentioned above, one can simply calculate the market cap of a token with the below formula.
            Market Cap = Price of one token x Circulating Supply
            For example, as of March 8, 2023, the circulating supply of Cardano (ADA) is 34,683,105,670 and the price of one ADA token is $0.32.
            So the Market Cap of ADA is (0.32 * 34,683,105,670 = $11,291,780,350)

            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.

            Read On: Find Support & Resistance Zones in Crypto

            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.

            FAQs

            Does circulating supply affect market cap?

            Yes, circulating supply is directly related tot he market cap of any asset.

            Is high circulating supply good?

            The circulating supply is similar to supply and demand concept of economics. The more supply a token has, the lesser value it will drive and vice versa.

            What is a good volume to market cap ratio crypto?

            The easiest way to calculate volume to market cap ratio is by dividing a coin's 24-hour trading volume by its market cap. 

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