What is the circulating supply in crypto?

Circulating supply refers to the number of coins or tokens that are in circulation and publicly available in the cryptocurrency market. These coins or tokens are held by exchanges, crypto users, or companies and can be used at any time.

Three types of supply

In the world of cryptocurrencies, there are three distinct types of token supply:

1. Circulating supply: This refers to the coins that are accessible to the public and actively in use within the market.
2. Total supply: This encompasses all tokens that have been created since the project's launch, including those that have been burned.
3. Max supply: This is the maximum number of coins or tokens that can ever exist for a particular cryptocurrency.

Examples of circulating, total, and max supply

To better understand these concepts, let's look at two popular cryptocurrencies:

• Bitcoin:

  • Max supply: 21 million coins
  • Circulating and total supply: Currently around 19.5 million BTC (this number increases gradually as new coins are mined)

• Cardano:

  • Circulating supply: Approximately 35.4 billion ADA
  • Max supply: 45 billion ADA
  • Total supply: About 36.2 billion ADA

Why does circulating supply matter?

Circulating supply is a crucial metric in the cryptocurrency space for several reasons:

1. It directly affects the price of a cryptocurrency through the basic economic principle of supply and demand.
2. It's used to calculate a cryptocurrency's market capitalization, which is a key indicator of a coin's overall value in the market.
3. It helps determine the scale and potential growth of a crypto project.

Can the circulating supply of a cryptocurrency change?

Yes, the circulating supply of a cryptocurrency can indeed change. Several factors can influence this:

1. Mining or minting new coins: This process introduces new coins into circulation.
2. Halving events: These are pre-programmed events in some cryptocurrencies (like Bitcoin) that reduce the rate of new coin creation.
3. Token burns: This process permanently removes coins from circulation.

Mining and circulating supply

Mining is a process that increases the circulating supply of a cryptocurrency. Miners are rewarded with new coins for their work in processing transactions and creating new blocks on the blockchain. This gradually increases the number of coins in circulation.

The impact of halving

Halving is a mechanism used by some cryptocurrencies to control inflation. It reduces the rate at which new coins enter circulation by cutting block rewards in half at predetermined intervals. This can have a significant impact on the circulating supply over time.

Token burns

Token burning is a deflationary measure used by some cryptocurrency projects. It involves permanently removing a certain number of coins or tokens from circulation. This is often done to control inflation or increase scarcity, which can potentially increase the value of the remaining tokens.

Know your circulating supply

Understanding the circulating supply of a cryptocurrency is crucial for several reasons:

1. It helps in calculating a coin's potential future performance.
2. It's an important factor in technical analysis.
3. It's essential for evaluating the long-term investment potential of a cryptocurrency.

It's worth noting that cryptocurrencies with no maximum supply and no token-burning mechanism may face downward price pressure as their circulating supply increases over time.

Conclusion

Circulating supply is a fundamental concept in the cryptocurrency world. It plays a crucial role in determining a coin's value, market capitalization, and potential for growth. By understanding circulating supply and how it can change, investors and enthusiasts can make more informed decisions in the dynamic and complex world of cryptocurrencies. Whether you're considering Bitcoin with its fixed max supply, or a token with regular burns, always factor in the circulating supply in your crypto analysis.

FAQ

Is high circulating supply good or bad?

High circulating supply can be both good and bad. It may increase liquidity but potentially dilute value. Lower supply often creates scarcity, which can drive up demand and price.

What happens if circulating supply reaches max supply?

When circulating supply reaches max supply, no new tokens can be created. The price may rise if demand remains high, or fall if demand decreases. Market dynamics will determine the token's value.

What does it mean if circulating supply is 0 in crypto?

It means no coins are actively circulating, resulting in zero liquidity and making the cryptocurrency essentially worthless.