What is Circulating Supply in Cryptocurrency? – An Essential Guide

The circulating supply of a cryptocurrency is the number of coins or tokens publicly available to buy and sell on the cryptocurrency market. Circulating supply excludes any coins or tokens that are locked, reserved, or otherwise not made available for public trading. However, it does include crypto that may be unrecoverable, like funds lost if an owner loses access to a cryptocurrency wallet; therefore, circulating supply might not always be representative of the crypto in active circulation. For example, it’s estimated that around four million Bitcoin (BTC) have been permanently lost.

Where circulating supply is the number of coins or tokens publicly available, the total supply of a cryptocurrency includes those that are not, or not yet, publicly available. Most cryptocurrency projects hold back a proportion of a coin’s total supply from the market and release or distribute more, over time. This can be through minting or mining and as part of proof-of-stake (PoS) or proof-of-work (PoW) consensus mechanisms.

The circulating supply of a cryptocurrency can be reduced via “burning,” which permanently removes coins or tokens from the market. A project can set coin burns for a specific purpose or within a certain timeframe.

Hence, a cryptocurrency’s total supply is the total number of units in existence, which can increase or decrease depending on the coin’s tokenomics.

Total supply does differ from maximum supply. A crypto’s total supply includes undistributed tokens. However, maximum supply includes all crypto that will ever come into existence, for example, coins that have yet to be mined.

Circulating supply can be calculated by taking the initial supply set by the cryptocurrency project and subtracting the volume of locked or reserved coins and any coins that have been permanently destroyed through burning.

The circulating supply figure can also be determined by taking the cryptocurrency’s market capitalization and dividing it by its current price.

Impact on Market Cap Calculation

The circulating supply of a cryptocurrency is used to calculate its market capitalization. To achieve this metric, the number of circulating coins and tokens is multiplied by the current price of a single coin.

Circulating Supply and Investment Decisions 

Here at CoinHint, we maintain that understanding circulating supply is vital to investing in the cryptocurrency market. It provides an indicator of market liquidity. Higher circulating supply usually equates to better liquidity, which means it’s easier to buy and sell a crypto without its price being affected too dramatically. Circulating supply can also indicate inflationary pressure. For example, a large supply released to the market can devalue existing coins and tokens.

Likewise, market capitalization is an important metric for investors as a higher market capitalization can indicate a more stable and popular asset, whereas a smaller market capitalization could indicate a new or more volatile asset. A low market capitalization for an asset that has been in circulation for some time may reveal its lack of popularity.

Lastly, a note on scarcity. A limited total or maximum supply creates scarcity, which can potentially increase demand and value over time. If demand consistently exceeds supply, the price of a crypto will rise. For instance, crypto burns can be planned to increase a cryptocurrency’s scarcity over time.

Supply and Demand

Cryptocurrency prices are significantly influenced by supply and demand. If demand exceeds supply, a crypto’s price will rise. Conversely, if supply exceeds demand, the price will fall. Releasing new coins or tokens to the market may drive the price down, whereas burning coins can drive the price upwards.

Circulating Supply as a Percentage of Total Supply

Circulating supply can be calculated as a percentage of the total supply. If a high proportion of the total supply of a cryptocurrency is in circulation, the value of the cryptocurrency cannot be significantly influenced by the release of new coins or tokens to the market. For example, Bitcoin’s circulating supply is around 90% of its maximum supply of 21 million. In contrast, if another coin has a maximum supply of 100 million but only 5 million coins in circulation, one could assume that the price of the coin will be driven down significantly when more coins are released.

Inflation

If a cryptocurrency project regularly releases new coins into circulation, this can be inflationary, impacting the value of existing or circulating supply. In contrast, coin or token burns can be deflationary and increase the value of the remaining cryptocurrency in circulation.

Bitcoin 

At the time of writing, Bitcoin (BTC) has a circulating supply of 19.69 million coins and a maximum supply of 21 million. Bitcoin is known for its scarcity because its supply is permanently capped and will never exceed 21 million. Consistent demand for Bitcoin will push its price upwards.

Ethereum 

Ethereum’s (ETH) circulating supply is currently 120 million. This coin has no maximum supply, which means that, in theory, an unlimited number of ETH can be created. However, Ethereum is regulated by the coin’s protocols and governance. Validators in Ethereum’s PoS network receive new ETH as a reward, but part of the ETH that users pay as transaction fees is burned.

Ripple (XRP) 

The circulating supply of Ripple (XRP) is 55.24 billion coins, and this coin has a maximum supply of 99.99 billion. In 2017, Ripple placed XRP in escrow to prevent a market dump but periodically releases the coin to the market.

There are numerous reliable sources investors use to check circulating supply and other metrics, such as market capitalization. These include CoinMarketCap and CoinGecko but also leading cryptocurrency news websites.

Circulating supply impacts cryptocurrency prices and serves as an important metric for investors and other stakeholders. A cryptocurrency’s supply will change over time based on its tokenomics and be impacted by internal and external factors, which must always be thoroughly assessed.

The circulating supply is the total volume of a cryptocurrency available on the crypto market. This metric is used to calculate market capitalization and is a vital indicator, when combined with other metrics like total and maximum supply, to assess a cryptocurrency’s risk and future success.