Circulating supply and total supply are two fundamental concepts every cryptocurrency investor should understand. As the names suggest, circulating supply is the number of crypto coins or tokens that are circulating or are available for trade in the market at a given time. Total supply is the total number of crypto coins or tokens sanctioned for a particular crypto project. It is the total number of coins mined to date and excludes those tokens that have already been burned.
In this article, you will learn every detail about the concepts of circulating supply and total supply and the key differences between the two.
What Is The Circulating Supply?
Circulating supply is the total number of cryptocurrencies of a particular project that are freely available for transactional purposes in the market at a given time. The circulating supply is not fixed. It can fluctuate according to the market conditions. For instance, to counter inflation, the project owners may reduce the circulating supply and increase the demand for a particular token. In many cases, a limited number of tokens are initially listed for circulation.
The circulating supply is increased by token mining or minting. The supply will go down at times of accidents like sending the tokens to irrevocable accounts, losing access to the account’s private keys, or at the time of token burning.
What Is The Total Supply?
The total supply of cryptocurrency refers to the total number of tokens mined so far. All the coins available as total supply are not circulated in the market. All the tokens that have been burned and removed from circulation are also not included in the total supply of a cryptocurrency.
The total supply also includes all the types of cryptocurrencies that have been locked as pre-mined tokens or those tokens that have been locked up in smart contracts. These tokens are kept locked inside the smart contracts till a particular event such as the project’s ICO.
Why Are Circulating Supply And Total Supply Important?
Circulating supply and total supply are important metrics related to cryptocurrency. The two are related to each other. Circulating supply is a percentage of the total supply of the tokens. The total supply is an important metric in the supply and demand economics of cryptocurrencies.
If the total supply is a lower number then it represents a higher scarcity for the token, which increases its demand and price. On the other hand, if a particular token or coin has a very high total supply, it will have less value per unit.
The developers must maintain a balance so that the coin becomes neither too scarce nor too abundant in supply. The tokens should not be too expensive and inaccessible for first-time users.
The circulating supply of a token or a coin determines its market capitalization and other factors that are related to the size of the token economy. The market capitalization of a cryptocurrency is calculated by multiplying the price per unit of the cryptocurrency by its circulating supply. This does not include the number of coins that are lost or stolen.
The circulating supply of a token can be increased or decreased through token mining and token burning. In the case of centralized tokens, the circulating supply is increased through token minting.
The remaining tokens of the total supply that are still locked up will be brought to distribution only after they meet the pre-set criteria. For instance, the tokens set aside to be given away as staking rewards will only be released at the time of staking. For some coins like the bitcoin, the total supply is fixed and capped at a certain number. Other coins have varying total supply.
The Bottom Line
Every crypto user should have a basic understanding of the token supply metrics of cryptocurrencies so that they can plan their investment portfolio to get the most success. Token supply and its nuances are basic information and a thorough knowledge of them will help you analyze the situations that lead to the future profitability of the particular cryptocurrency.
