The crypto market has proliferated over the past decade, spurring increased interest in metrics that measure the market’s performance. Market capitalization and circulating supply are two important metrics; this article will explain their differences.
What is Market Capitalization?
It is the total value of a digital token. It is the most crucial metric for evaluating a cryptocurrency’s performance and market sentiment. It is a digital token’s total tradeable value at a specific time.
You can calculate market capitalization by multiplying a token’s price by the total number of tokens in circulation. For example, if a token costs $1, and there are 500 units in circulation, the market cap is $1×500 = $500.
What Is Circulating Supply?
It is the number of tokens actively available to trade and in the hands of the public. These are the coins that have already been distributed to investors and are not locked up in the project’s treasury or withheld by the founding team.
The circulating supply is usually less than the total supply. The latter is the number of possible tokens available to investors. Some tokens have fixed total supplies, while others do not. For example, Bitcoin (BTC) supply is capped at 21 million units, but Ethereum (ETH) has no maximum supply.
The Relation Between Market Cap and Circulating Supply
These two metrics are closely related. The market cap is determined by a token’s price multiplied by its circulating supply. The circulating supply is defined by a token’s initial creator or founding team, while the global markets decide the price and market cap.
The price and value of crypto assets closely follow the law of supply and demand. The price will increase if there is little circulating supply to fulfill the demand for a token. If the supply exceeds demand, the price falls.
Many token developers actively manage the circulating supply to maintain prices. For example, Binance, the popular crypto exchange, burns some BNB tokens at specific intervals to maintain the price.
Why Do Market Cap and Circulating Supply Matter?
These are the primary metrics that investors and traders use to evaluate a token. They give a good indication of how the general public feels about a token.
Investors compare the circulating supply and market cap crypto to help decide where to invest. For example, if two projects have similar market value, but one has a larger circulating supply, it signals that the larger one is less valuable. The other, with a lower circulating supply, is more valuable because maintains a high price with little circulation.
Tokens With the Highest Market Capitalization
The coins with the highest market value include
- Bitcoin (BTC): The world’s first mainstream cryptocurrency, released in 2009. It was created by a pseudonymous person named Satoshi Nakamoto. It remains the most popular cryptocurrency globally.
- Ether (ETH): The native token of the Ethereum blockchain, released by a team of developers in 2015.
- Tether (USDT): The world’s most popular stablecoin. Stablecoins are tokens pegged to the value of another asset, in this case, the U.S. Dollar.
- BNB: The native coin of Binance, the world’s most popular cryptocurrency exchange.
- XRP: The native token of the Ripple blockchain.
- USDC: Another stablecoin pegged to the U.S. Dollar.
- Dogecoin: A ‘memecoin’ released as a joke in 2013.
- ADA: The native coin of the Cardano blockchain.
- SOL: The native token of the Solana blockchain.
- TRX: The native coin of the Tron blockchain.
We have explained the core differences between market capitalization and circulating supply. Investors must understand these differences to evaluate market sentiment and make sound investment decisions.