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Author : Crypto Income Staff 21 November 2017
Analyzing and understanding the potential price and value of a cryptocurrency can be both tricky and frustrating. There are no quick and dirty methods of analysis that can forecast an altcoin’s price, but there some parameters that can help you understand where it might go and how to gauge if the coin is (still) a good potential investment. Developing a good understanding of these factors can help you understand some of the things that are going on in the market. Nobody can know everything that is happening in the market, but understanding these concepts will enable you to know a few things. Some understanding of the market is always better than no understanding. The cryptocurrency analysis concepts that every altcoin investor should be familiar with areTotal Supply, Circulating Supply, Coin Price, Market Capitalization (popularly known as Market Cap), and Coin Price. Researching these will give you a better, but not always clearer, understanding of what is happening with the market. WHY YOU NEED TO KNOW THE TOTAL SUPPLY OF A CRYPTOCURRENCY. The Total Supply (also known as ‘fully distributed market cap’) of a cryptocurrency is all the altcoins of that specific currency in existence that are circulating and the ones released in the future. This includes the coins available in the market or circulating supply, and all the currency being held by speculators, investors, and the people involved in the initial cryptocurrency offering (ICO). The Total Supply is important because the size of it can determine the Coin Price.
A popular rule of thumb is the larger the supply, the lower the price. Note: this is not always true because outside factors; such as investors’ sentiment and legal restrictions, can affect the Coin Price. Three factors which can shape the total supply are the Founder’s Coins, the Mining Rate (also known as coin inflation), and the Company Lockup. Some cryptocurrencies out of the circulating supply for bounties and promotion as well. Knowing what these terms mean are important because they can provide more data for analysis. The term Founder’s Coins refers to cryptocurrency that the team behind an ICO is keeping for themselves. These coins might be sold off over a period of years, or kept by the founders as personal nest eggs. You can usually learn the number of founder’s coins by carefully reading the ICO website; the amount of the currency reserved for the founders is usually listed there or in the ICO whitepaper. Many cryptocurrencies have a ‘founder’ coin allocation between 5% to 30% with 10%-15% the usual figures though there are some cryptos where the founders own most of the supply. Generally, the LESS coins a founder hold, the better. A good ICO would have founder coins locked up for 1-4 years and released on some automated distributed smart contract to prevent the founders from dumping their coins on the market. This protects the investors and the coin value. The Mining Rate is the speed at which new altcoins are created from the blockchain.
It can affect the supply because faster mining means more cryptocurrency on the market which can lead to a lower price. Determining the total Mining Rate for a cryptocurrency can be tough because different miners have different speeds. This rate can be estimated by tracking the rate of change in the circulating supply. The Company Lockup is the number of altcoins deliberately kept off the market by the organization behind an ICO. Unlike the Founder’s Coins, this cryptocurrency is held by the company rather than individual. Like the Founder’s Coins, the end of the Company Lockup can suddenly change the Total and Circulating Supplies by releasing a large amount of coins onto the market. The amount in Company Lockup is usually revealed somewhere on the ICO’s website. The Total Supply must not be confused with the Maximum Supply. Some cryptocurrencies, such as Bitcoin, are designed with a limit on the number of coins that can be mined. Once Maximum Supply is reached there will be no new Bitcoins. Other altcoins, like Ethereum, have no Maximum Supply so their Total Supply can keep growing forever. WHAT IS UP WITH CIRCULATING SUPPLY? The Circulating Supply is the number of altcoins for sale in the market right now. This number can be easily determined at websites such as https://coinmarketcap.com/ – which list the Circulating Supply. Tracking the Circulating Supply is the best way to estimate the demand for a cryptocurrency. This can be best done by looking at the Change Rate number posted at some websites.
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