In cryptocurrencies, just by knowing the market cap, we can’t make an accurate judgment about the company’s value. We don’t know how many of those coins are just locked up in dormant wallets and what is the true velocity of these tokens.
Another metric to consider is the circulating supply, the number of coins for sale in the market right now. Let’s say that the size of the circulating supply may affect how fast the coin price might change.
Imagine the market as a store that sells apples. If the demand is a high cause of the apple’s fundamentals and the number of apples that are accessible to the public is limited, the apples automatically become more valuable, and their price skyrockets. All the currencies having something around 100 Million or less in circulation have skyrocketed so quickly.
The circulating supply most of the time is not steady. And here enters the inflation & deflation work in the crypto-market.
It is increasing during the time, programmatic inflation as it is said (creating abundance), depending on the mining speed, like Bitcoin, or staking APY, till the max supply to be reached (the number of coins that will ever exist).
OR it is decreasing via the coin burn mechanism, a deflation method of removing coins from the market completely (creating scarcity), by sending a number of the coins/tokens to an address that no one has access, hence the token’s value tends to rise, which sounds quite sexy.
Ok now another thing, you have observed in some cryptos that their maximum supply is unlimited, infinite. Take Ethereum as an example. Then you may wonder if ETH will lose value in the long future, as based on the coin’s scarcity, there is no hard cap. Probably it will. Yet, we should also consider the mining speed, and in the case of Ethereum, the ETH release speed in our time period is low, plus the fact that the rate of release of coins will diminish over time, adding value to the coin.
Less is More in that case 😎