Understanding a cryptocurrency’s circulating supply vs. total supply is critical in determining its price. These two metrics inform investors about the chance of price appreciation and dilution risk.
So, knowing how to make investment decisions considering the circulating and total supply represents one of the most rewarding lessons for beginner traders. Let’s learn more about these two aspects.
Is Circulating Supply the Same as Total Supply?
Although the total and circulating supply can be equal in some cases, they typically aren’t the same. The key circulating supply vs. total supply difference lies in the availability of tokens in the market versus the total number created.
What Is the Circulating Supply?
The circulating supply refers to the tokens and coins that are publicly available and circulate in the market. For example, the BTC’s total supply is 21 million, while its circulating supply is 19.7 million.
Over time, this number can rise or drop. For instance, the circulating supply of Bitcoin increases due to Bitcoin mining, which generates new coins. Then again, BNB’s circulating supply declines due to Binance’s coin burn events, as coins are permanently removed from the market.
What Is the Total Supply?
The total supply represents the total number of tokens or coins of a cryptocurrency that have been mined or created, including those in circulation and those reserved or locked. Still, that number shouldn’t include coins that have been destroyed or burned.
For example, Polygon’s total supply of 10 billion indicates the number of tokens created, including those currently locked.
Circulating Supply vs Total Supply: How They Affect the Price of Cryptocurrencies
Both the circulating and total supply affect crypto prices. The circulating supply impacts prices because a higher supply requires greater demand to drive prices up. When the supply is low and demand is high, prices are likely to increase. In fact, many of the best low-supply crypto options have a higher price.
Conversely, prices may drop if supply is high, but demand is low. The crypto coin cap also plays a significant role, as it sets a ceiling on the number of coins that can ever exist, further influencing price dynamics based on scarcity and demand.
The total token supply affects crypto prices by influencing the potential for dilution and scarcity. If a large portion of the total supply is locked or reserved, the circulating supply remains limited, and cryptos with limited supply can drive prices higher due to scarcity. However, if the remaining tokens are released into circulation, the increase in supply without corresponding demand may dilute the price, leading to a decrease.
What Happens if Circulating Supply Reaches Total Supply?
When all tokens have been released into circulation, the circulating crypto supply has reached the total supply. The token’s price may rise or drop depending on the market’s state, but there won’t be any other significant occurrences.
For instance, the Ethereum circulating supply is the same as the total token supply. Moreover, Litecoin’s circulating and total supply are identical — 84 million — so all tokens are mined. Due to market conditions, LTC’s price has fluctuated many times. Such an instance occurred during the 2021 bull market, when LTC peaked, and investors could buy the coin for $386. Yet, the bear market saw a gradual decline in the price, dropping to $50.
Conclusion
When considering the circulating supply vs. total supply, remember that they are not the same, although they can be equal sometimes. The circulating supply refers to the tokens and coins that are publicly available and circulate in the market. Then again, the total supply represents the total number of tokens or coins of a certain cryptocurrency that have been mined or created, including those in circulation and those reserved or locked, excluding coins that have been destroyed or burned.
Both the circulating and total supply affect crypto prices. When all tokens have been released into circulation, the circulating supply has reached the total supply. Depending on the market’s state, the token’s price may rise or drop, but there won’t be any other significant occ