Analysing Cryptocurrency Investment-Part 2

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Author : Crypto Income Staff 21 November 2017

Circulating supply directly affects the price of the coin. The ‘lower’ the circulating supply, the higher the price (depending on market cap with lower market cap giving a lower price). The circulating supply is the value that’s generally used to calculate the price of the coin. This means a cryptocurrency with a lower circulating supply (such as say 10 million coins) is likely to have a much higher price per coin than a coin with a higher circulating supply. For example, Ripple with billions of coins in supply and with a market cap in the billions has a coin price of about .25c to .40c). Zcash with a circulating supply of just above 1 million has a coin price ranging in the hundreds of dollars. Ripple, due to the huge coin supply, will never have a coin that’s $10, $50, or $100. Small circulating supplies allow for higher prices per coin to be reached, assuming the same market cap. Another point here is that a coin with a small circulating supply is likely to rapidly increase in price much faster than a coin with a large circulating supply. For example, it’s much easier (and faster) for a coin like Monaco with 10 million circulating supply to reach $25 dollars per coin than a coin like TenX which has 100 million circulating supply. The price jump tends to be quicker. Generally, changes in the Circulating Supply precede a price change. Usually, a bigger Circulating Supply indicates a lower price, and a smaller Circulating Supply leads to a higher price.

A change in circulating supply occurs when new coins are mined or some of the coins in lockup (founders coins, company coins, etc) are released into circulation. THE IMPORTANCE OF COIN PRICE. The Coin Price is the amount that a unit of a particular cryptocurrency is selling at in the market right now. This is the number that news stories about a particular altcoin will usually focus on because it is easy to understand. A headline about $7,000 Bitcoin is referring to the cryptocurrency Coin Price. The Coin Price is determined by a combination of Market Demand and Circulating Supply. Circulating Supply. Circulating Supply is the total amount of coins in circulation right now. This does not include coins that have not been released yet. The size of the Circulating Supply will affect how fast the coin price might change. A sudden increase in the Circulating Supply, such as the coin founders releasing their held coins into the Circulating Supply can lead to dramatic change in the Coin Price in a downward direction. Usually, Company / Founder held coins are locked in a smart contract and only released at scheduled intervals to prevent this (usually over years). Market Demand. Market Demand is a simple concept to understand but a hard one to measure. A high market demand will usually lead to a high price, if there is a limited Circulating Supply. Market Demand is simply this: how much people are willing to pay for a coin. The higher the demand, the higher the price. A low Market Demand will often lower the price.

Something to remember is that a lower price will not always lead to a higher Market Demand. Market Demand is hard to measure because it is often affected by outside forces that are hard to measure such as investors’ sentiments and news coverage. Market Demand and Coin Price often go up after news stories about high Bitcoin prices for example. Psychology of Coin Price. When looking at a coin price, there is something to be said about psychological factors that play a role. A cryptocurrency that hits $1, for example, passes a sort of psychological milestone. We could say the same thing about bitcoin when it hit $1000, $10,000, and recently, $20,000. A coin passing a certain price seems to spike serious market demand as the coin ‘proves’ it’s value. The takeaway is that if a cryptocurrency climbs past a certain price, that price becomes fixed in the mind of the public and likely the coin will either gravitate to around that price and it becomes the new ‘price’ as people adjust to this. For example, a cryptocurrency that was .03 rising to $1 and staying at $1 for a period of time will likely have people fixing that $1 value as the ‘worth’ of that cryptocurrency. This may lead people NOT to sell below that price and that price becomes the new support line. Keep in Mind the ICO Price and Whether The Coin Has Had Price Corrections. You also want to keep in mind the cheapest price investors paid for the coin when guestimating the price support.

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