Did you know that the Bitcoin supply is limited to 21 million? No matter how hard miners try, they can’t mine more than 21 million Bitcoins. This also means that only 21 million coins of this most popular cryptocurrency will be in circulation at any given moment. In other words, Bitcoin is a deflationary coin.
But then there are other tokens like Ethereum that are sustained by a constant flow of new assets added to the ecosystem. This makes Ethereum inflationary.
Now, we all know that cryptocurrencies follow the demand and supply principle that influences their growth. So, why are people investing in cryptocurrencies with a fixed supply?
In this article, we explore the topic of coins with limited supply to help you understand what exactly they are, how they work, and why people keep on investing in them.
Basic terms for understanding cryptocurrencies with fixed supply
To help you make sense of it all, let’s first take a look at some of the basic terms you need to know for discussing cryptocurrencies with limited supply.
Supply – the term “supply” in the cryptocurrency scene refers to the number of tokens of coins that are in circulation at a given time.
Fixed supply – this is the total number or the maximum amount of coins that can be on the market (and available to investors).
Total supply – the total supply is the total number of coins that have been mined so far. This also includes coins that have been lost or ones that are no longer in circulation but were mined anyway.
Circulating supply – this is the number of coins that are currently in circulation.
What are cryptos with limited supply?
To answer this question, you need to remember that the circulating supply and prevailing value of a given cryptocurrency are correlated.
The largest cryptocurrency in the world, Bitcoin, has a market cap of 21 million. To keep up with this form of supply, every four years, the value of the mined Bitcoins is reduced by half.
It’s essential that you understand that relationship to make the right investment move.
When as an investor, you buy a coin with limited supply, it means that you’re banking on its potential future value. It’s critical to take both supply and demand metrics of a given cryptocurrency into account.
Naturally, many other factors will impact the value of digital assets apart from their fixed supply. Investing in cryptocurrencies with a limited supply doesn’t always guarantee great profits in the future.
Apart from the fixed supply, you also need to check other key characteristics and understand whether the coin demand will rise and what’s the timeframe of the supply getting exhausted. Before investing in cryptocurrency, make sure that it has a feasible cycle.
For example, Bitcoin was designed to run until 2140. By that time, the supply will be fully mined. Miners will continue getting rewards until the end of that time. The value and amount of the coin will reduce as the end approaches the coin.
Apart from Bitcoin, you can find many other tokens or coins that have a fixed supply. But then there are other coins that don’t have limited supply – for example, the second-biggest cryptocurrency in the world, Ethereum.
Is it worth investing in crypto with limited supply?
Before you jump on the crypto bandwagon and invest in a coin, note that coins with a limited supply offer higher chances of retaining their value than ones with infinite supply.
But before making your move, consider the type of supply that crypto has. Just because you picked a coin with a fixed supply doesn’t guarantee profits in the future.
Here are a few other factors you should consider:
- The cryptocurrency in question needs to have a rising demand.
- The time the coin will exhaust its supply is important as well.
- Make sure that the coin you invest in has a feasible halving cycle.
Which coins have a limited supply?
Today, Bitcoin (BTC) is the most popular cryptocurrency in the world. In the last few years, it’s been a go-to option for most crypto investors primarily because of the dramatic increase in demand and value.
Litecoin (LTC) is a cryptocurrency built on top of the original Bitcoin project. It comes with a better transaction speed and scalability. And it has a limit cap of 84 million. Until today, around 75% of that amount is in circulation.
The Cardano (ADA) cryptocurrency powers the peer-reviewed app platform of the same name. The crypto comes with a supply limited to 45 billion, one of the highest limited supplies we have seen on the crypto scene.
Another cryptocurrency coin with a limited supply is Stellar (XLM). You can use it for payment settlement among individuals and across borders. Stellar has a maximum supply limit of 50 billion and is today valued at $0.40 per unit.
Chainlink (LINK) is an Ethereum-based token and another popular crypto coin with limited supply. You can use it to create and run smart contracts. Its value is around $30 per unit. The maximum supply limit of Chainlink is 1 billion.
Cryptocurrencies with unlimited supply still have their value. For example, Ethereum doesn’t have a limited supply, and it’s still the second-largest cryptocurrency by market cap.
Just because a coin comes with a limited fixed supply doesn’t automatically mean that its value is going to rise no matter what. Analyze the factors we mentioned above, and you can be sure that your final investment decision will be a good one.
Do you have any questions about cryptocurrencies with limited supply? Give us a shout-out in the comments and share your insights and best practices in crypto investing.