Crypto Starterkit, Cryptocurrencies, Markets

The supply-price-fallacy which might make you poor.

oasis

If a coin has a low supply of coins and the price is cheap, you might be very tempted to buy the said coin because the potential upside is insane. A lot of people (including me) fell for this in the past or still do. We became bagholders. What’s the issue with this? And how to avoid it?

Especially new investors often times fall for this simple trap.

trap

A coin is cheap and its supply is very low. In your mind, you think “By the rule of supply and demand, it only makes sense if this coin goes to the moon like crazy, because the supply is finite“.

Technically, your thought process is correct, only a bit shortsighted.

Let’s use Bitcoin as an example here. Bitcoin has a supply of 21 million Bitcoins. Circulating coins are 17.372.012 Bitcoins at the moment of writing this post. So, the coin is actually pretty scarce. Considering 7 billion people would want to pay with it and/or hold some of it.

And as history taught us, we are still pissed we didn’t get into Bitcoin when its price was only a few dollars. Because it went to 20.000 USD per Coin and we would’ve bought a bunch of lambos already.

False idols

the cake is a lie

A lot of people then proceed to use Bitcoin as their primary example and reason as to why they invested in a cheap low-supply coin, without properly checking its fundamentals. And then they end up bagholding.

First of all, Bitcoin is already around for 10 years. If that is your desired timeframe, okay, but you still have to check for fundamentals if your coin of choice will even be around in ten years. Apart from that, I wouldn’t aim for that sort of timeframe. You can make more money way before ten years in this space. So why not do that? It’s not like your risk is severely reduced if you wait ten years for any weird shitcoin to moon.

It all comes down to this: Supply AND Demand! It’s not just supply and price, people always forget the demand. A low supply only boosts the price, if the demand is very high. And high demand is only achieved if the coin is worth its salt.

Yes, if the coin is cheap, supply is low and demand is high, you can make a shitton of money with it. So these are your goals. But this doesn’t automatically render all high-supply coins worthless. And on top of that, it doesn’t mean any low-supply coin is the holy grail of lambos.

Stop buying shit(coins)

This whole post comes down to this: Don’t buy coins solely because they have a low supply and are cheap. There is much more to consider. Is the demand there? Does this coin have a use-case? Will it even be around until the next bullrun happens in which you will reap your rewards?

Don’t cross out coins with a high supply, either. Exhibit A, our beloved shitcoin XRP. This trash has a supply of 99 BILLION coins. Now you might think with a supply like this, this coin will never achieve notable prices worth mentioning. Right now it sits at 50 cents and had it’s lowest pre-2017-bullrun with about 22 cents. But it went up to 3,65 USD a coin. Therefore XRP managed an increase of 36.000% in 2017. With billions in supply.

The math in all of this can be found in my post about altcoins in general and how to calculate your potential winnings.

There is also another caveat. Some coins have unlimited supply, or the max supply isn’t shown right on coinmarketcap.com or the max supply isn’t set yet.

A personal mistake I’ve made is $TUBE. While I like this coin a lot (I am mining it) I made a mistake regarding its supply. Coinmarketcap says its supply is 99 million $TUBE coins.

bittube supply coinmarketcap
Total supply actually isn’t correct here

But if you check on BitTube’s actual website, they say something different:

bittubes actual supply

It clearly states that the max supply for this coin will be 1 billion $TUBE. The info on coinmarketcap is misleading. I don’t know why that’s wrong on the website, but you should definitely keep that in mind. Maybe your low-supply coin isn’t as low supply as you think it is.

Doing it right

So how to do it right? Follow these steps:

  • Don’t buy a coin just because price and supply are low
  • Do not NOT buy a coin just because its supply is high

Pretty simple, right? But that’s literally all there is to keep in mind. You can use a low-price low-supply coin as an indicator to do more research on the coin if a high demand is possible in the future which might drive the price.

Don’t buy coins solely because they have a low supply and are cheap

And if the supply is very high but the price is still cheap, there is a lot of potential upside regardless. Use the supply as an indicator where the coin is positioned right now. But don’t use it as your only indicator.

Also, for god’s sake, please don’t invest just because the supply is low. You might end up holding a bag.

Alex

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