Many traders who are often part of the cryptocurrency sector, however, are not always fully familiar with many of the basic concepts of this asset class. One of these concepts is circulating supply. In this publication, we will try to shed some light on this matter.
Circulating supply is an important indicator that is mentioned quite often in many analyzes regarding the cryptocurrency sector. If you have anything to do with digital currencies, you’ve probably heard things like “Bitcoin supply in circulation” many times – but what does that really mean, and in particular how does it differ from the total cryptocurrency supply?
Understanding the supply chain
The definition of “circulating supply” refers to the total number of cryptocurrency units that are currently in circulation and available to the public to all market participants. The important fact is that this number may change over time depending on the number of new coins or tokens that are minted or the part of them that is in the domain of mining. We must not forget about the volume of coins and tokens that will be destroyed by burning.
Circulating supply is most commonly used primarily to calculate market capitalization. If you want to calculate the circulating supply of a digital currency, you should multiply the total number of its units that are available in circulation by the current market price of a given digital currency. This metric is also sometimes used to measure the rarity of a coin or token.
What is the total supply in cryptocurrencies?
The concept of total supply should be understood as the total number of coins that have already been issued for a given cryptocurrency. This is the total sum of the supply of a given digital currency in circulation, as well as any coins or tokens that, for various reasons, are currently not available in circulation. It is important that the total supply does not include coins that have been burned or otherwise ceased to exist.
First of all, due to the fact that locked coins and tokens do not affect the price movement of the cryptocurrency, this number is generally not included in any way in standard analyzes or calculations of the market capitalization of crypto assets.
What is the maximum supply in cryptocurrencies?
The maximum cryptocurrency supply is simply the total number of coins that can ever be in circulation. Most often, this number is set at the time of coin creation and cannot be changed later, although there are some exceptions in this regard. Maximum supply often gives traders an idea of how rare and unique a particular digital currency or token is. For example, Bitcoin, which is the oldest cryptocurrency, has a maximum supply of 21 million BTC, which means that only 21 million BTC will exist in its entire history and no more coins can be created. This makes Bitcoin a relatively unique cryptocurrency asset and largely explains why its price can be so high. On the other hand, it is worth knowing that there are also other popular cryptocurrencies that are not limited by any maximum supply.
Why is circulating supply used instead of total supply to determine market capitalization?
Circulating supply is the number of coins currently available for trade for investors of a given cryptocurrency. In turn, the total supply is the number of coins that currently exist in the cryptocurrency market, but not necessarily all of them are in circulation. This definition does not include coins that may be blocked or otherwise unavailable to traders. Market capitalization is an indicator that is determined by the current price of a coin multiplied by its circulating supply. The mechanism works this way because market capitalization gives investors an idea of the total value of all the coins that are currently in circulation at any given time. The important piece of information is that the circulating supply is a much more accurate representation of the number of coins that are actually traded, so it is a better and more practical indicator of market capitalization.