What Is Circulating Supply in Crypto?

What is the circulating supply in crypto? Understanding this concept is critical for financial traders who want to make smart investment decisions.

With this metric, they can gain valuable insights into the availability and distribution of any crypto within the market and a deeper understanding of the dynamic driving price volatility, market capitalization, and token value. Let’s learn more.

What Is the Circulating Supply in Crypto?

Circulating supply refers to the total number of tokens or coins that are currently available for trading in the market, not counting any reserved or locked tokens. It indicates the portion of the total supply that the public can buy, sell, or trade. For example, as shown in BTC’s circulating supply chart, Bitcoin’s current circulating supply is 19.7 million.

A cryptocurrency’s circulating supply can increase or drop over time as new coins are mined or burned. Tokens or coins can also be lost if they are sent to an irrecoverable wallet address or if the wallet keys are lost.

Let’s talk briefly about the circulating supply vs total supply. So, what does circulating supply mean in crypto, and how does it differ from total supply? The circulating supply refers to the tokens that are currently available for trading. On the other hand, total supply is the total number of tokens that exist in a project, including those that are not yet released or are locked. The difference between these two can provide insights into a cryptocurrency’s economic model or distribution approach.

What Is a Good Circulating Supply in Cryptocurrency?

Before you invest in a crypto project or a cryptocurrency, you should determine the ratio between the total and the circulating supply. If 50%–80% of the coins are in circulation, that’s a good sign — here’s why.

If less than 50% of the coins are in circulation, there’s a risk that more of that cryptocurrency may flood into the market suddenly, losing value. Moreover, market capitalization doesn’t always increase with the rise of circulating supply, as the price can grow quickly, while a rapid influx of coins into the market can decrease your potential profits. Similarly, if over 80% of the coins are in circulation, things are probably going downhill, too.

How Does Circulating Supply Affect Cryptocurrency Price?

Now that we know the circulating supply meaning, let’s see how it affects a crypto’s price.

Many traders think a cryptocurrency is worth investing in if its price is high. Even though that’s not that far from the truth, there are exemptions to the rule. For more experienced traders, a high price means a low circulating supply.

Let’s take Ethereum as an example. Its circulating supply is higher than Bitcoin’s available supply, impacting its lower price. Many consider a low price a sign that the project isn’t worth anything. However, it’s essential to consider that the supply may also be limited.

For instance, let’s look at Shiba Inu, the popular meme coin. With a current price of $0.00001349 and a circulating supply of 589 million, its market capitalization remains quite high at almost $8B.

The best low-supply cryptocurrency options can offer similar advantages by maintaining scarcity, which can drive value appreciation over time.

How Do You Calculate Circulating Supply?

Any circulation supply number is an approximation, as blockchain cannot measure the number of tokens created or in circulation. The calculation includes deducting any coins subsequently burned from the initial supply of coins or tokens created at launch.

Additionally, the process involves accounting for any portion of the supply that may be locked away for a certain period and any reserves held for development, future release, or other purposes. This gives users and investors a clearer insight into the actual number of coins or tokens available in the market for trading.

You can also calculate it by dividing the cryptocurrency’s market cap by its price. Here’s the circulating supply formula:

Circulating Supply = Market Cap/Price

What Happens When Circulating Supply Is Reached?

When the circulating supply reaches maximum supply, that means that all coins have been released into circulation. The cryptocurrency’s price may increase or decrease depending on the market’s state, but nothing else significant will happen.

Let’s take Litecoin as an example. Its circulating and max supply are the same, standing at 84M, meaning that all coins are mined. Its price fluctuates due to market conditions. For instance, LTC reached a peak during the 2021 bull market, when people could buy the coin for $386, gradually dropping to $50 during the bear market.

Conclusion

So, what is the circulating supply in crypto? The circulating supply is the total number of tokens or coins actively available for trading within the market, excluding reserved or locked tokens. For instance, the circulating supply of Bitcoin is 19.7M. Good circulation is when 50%–80% of the coins are in circulation.

The circulating supply of a cryptocurrency affects its price by impacting the balance between demand and supply, with higher supply potentially leading to lower prices and lower circulating supply driving them up. You can calculate the circulating supply by dividing the cryptocurrency’s market cap by its price.

When the circulating supply reaches maximum supply, the cryptocurrency’s price may increase or decrease depending on the market’s state, but nothing else significant will happen.

FAQs