Total supply has a huge impact on the value of a cryptocurrency. Here’s how it affects it:
1. Supply and demand:
If the total supply is limited (such as Bitcoin which has a maximum supply of 21 million units), this creates scarcity, which increases the attractiveness of the currency and often causes its value to rise if demand is high.
However, if the supply is unlimited or can be easily increased (such as some currencies that constantly issue new units), this may lead to a decrease in its value in the long run due to inflation.
2. Scarcity and reliability:
Currencies with a fixed or decreasing supply over time foster a sense of scarcity and trust, making them attractive to investors.
Conversely, currencies that rely on a variable and opaque supply may reduce investor confidence.
3. Total in circulation vs. total available:
Total supply refers to the total number of units that can be mined or issued.
The total traded refers to the number currently available in the market. The difference between the two affects the market dynamics.
4. Use cases:
If a cryptocurrency relies on a large total supply but is widely used in everyday applications (such as payments or decentralized finance), its value may remain stable.
However, if the currency lacks real use cases and has a large supply, this may lead to its value decreasing.
5. Management and Governance:
Some cryptocurrencies have mechanisms to manage supply (such as burning or reducing rewards over time), which helps boost their value.
Therefore, total supply is an important factor but it depends on market dynamics, demand and actual use of the currency.
