Circulating supply is the number of cryptocurrencies or tokens that are publicly available and circulating in the crypto market.
Circulating supply of a cryptocurrency can be used to calculate a coin’s market capitalization, which is generated by multiplying the current market price with the number of coins in circulation.
Market capitalization is used as an indicator of a coin’s dominance and popularity. It helps with making smarter investment decisions.
Here are two incidents where the term circulating supply has been used in mainstream media.
- “Nearly 25% of ETH’s Circulating Supply Stored on Centralized Exchanges.”
(Finance magnets October 30, 2020)
- “Visual Interpretation of Bitcoin’s Supply Shows the Digital Asset’s Unique Scarcity”
(Bitcoin.com October 5, 2020)
The circulating supply of cryptocurrencies can either increase or decrease with time. Bitcoin, for example, one of the best performing digital coins, has its circulating supply set to gradually increase until the max supply of 21 million is reached.
Why Circulating Supply is Important
The law of supply and demand like any other asset governs the value of cryptocurrencies. The value of a crypto coin is determined by what people are willing to sell it for and what they are willing to pay for it.
Circulating supply is the supply in the law of supply and demand. If it is high and demand is low, prices of respective coins will depreciate. If supply is low and demand is high, then the coin prices will appreciate raising the value of the coins.
Circulating supply is not to be confused with total supply or max supply. The total supply is the number of cryptocurrencies in existence, which is the number of coins that were issued minus those already burned.
The total supply is more of the sum of circulating supply cryptocurrency and the coins that are locked up in escrow.
On the other hand, Max supply is the best approximation of the maximum amount of cryptocurrencies that will ever exist. This includes the coins that will be mined or made available in the future.
Coins that are secured, stored, or not ready to be exchanged on the public market are coins that cannot influence respective crypto coins’ prices. They, therefore, should not be allowed to influence market capitalization.
With cryptocurrencies, there are coins that are capped, which means when the final coin is mined, no more can be mined. For example, the supply of Bitcoin is limited to 21 million. Currently, around 18.5 million have already been mined, leaving less than three million that are yet to be mined.
There are also coins that have infinite accumulation. They are cryptocurrencies with unlimited supply examples include Dogecoin and Peercoin.
Coins with smaller limits, Bitcoin being a good example, have shown to be more expensive than their counterparts, coins with higher limits.
With the law of supply and demand dictating the value of various cryptocurrencies, understanding the circulating supply of cryptocurrencies is essential to help with crypto trading. Such knowledge can make crypto trading a little easier and profitable.