A certain amount of people in the world pretend things that are ridiculous. That’s how life works. But it happens particularly often in the cryptocurrency world, and even more particularly when people talk about the supply of a cryptocurrency. It’s annoying.
Fun fact: I previously believed in the idea that supply is very important when investing in a cryptocurrency. But with the time I realized that it was completely ridiculous. A lot of people, when searching for cryptocurrencies to invest in, pay a lot of attention to the supply. Most of these people think that the supply of a cryptocurrency may not be too big, nor too little. Let’s take John for example. John wants to invest in Cardano. He loves the project, but when he sees the astronomical supply of ADA (Cardano), he didn’t invest in it because he thinks the volatility would be too low because of the size of the supply. Besides that, he doesn’t understand the decision of the founders of Cardano of having such a big supply, so he leaves the Cardano community. Sadly enough, this often happens, and it’s ridiculous.
Firstly, the supply of a crypto depends on the use case of that currency. If you want your cryptocurrency to be used as a “real” currency that millions of people can use, it seems logical that the supply has to be enormous because otherwise people will have to exchange fractions of your currency. This is the reason why the supply of Cardano is as big as it is. It’s also the reason why I personally see Bitcoin more like a store of value than a peer-to-peer electronic cash system because the supply is just too low. Now if you want to create a cryptocurrency which is a store of value, or some kind of blockchain-based item which aims to have a lot of value, it seems logical to have a (very) little supply. Because if everyone has it, it hasn’t any value. In short: it has to be scarce.
Secondly, the supply of a cryptocurrency hasn’t any impact on the price fluctuations of that currency. Because if you think that a cryptocurrency with a little supply will be more volatile than a cryptocurrency with a big supply, it also means that you think that by creating a cryptocurrency with hundreds of thousands of quadrillions of units, the price will remain stable. Laughable, right?!? The current crypto winter perfectly demonstrates that: Cardano has lost approximately as much value percentage-wise than NEO has, but Cardano’s supply is around 26 billion units, while NEO’s is around 65 million units. So Cardano’s supply is 400 times bigger than NEO’s, but as volatile as NEO.
But I have to admit that sometimes, supply is important, and particularly in one case. Imagine you want to invest in a cryptocurrency on a long-term perspective, let’s say 10 years. But only 10% of the supply is already in circulation. If the market cap of the currency increases by 100 times in those 10 years, for example from 10 million to a billion dollars, you will not make a 100 times gain. The reason why is because most of the not-in-circulation supply will be in circulation at the end of those 10 years. So you will not make a 100 times gain, but “only” a 10 times gain, which is a big difference. So yes, it’s important to look at the circulating supply compared to the total supply.
I guess that’s the end of this story, thank you for reading it! 🙂