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Understand the Circulating Supply in Cryptocurrency

Published 4 months ago on October 04, 2024

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The circulating supply in the crypto world is the actively traded tokens or coins currently available. Join Crypto Daily as we explain circulating supply and how it plays a role in calculating market capitalization.

What is Circulating Supply?

Circulating Supply in the crypto world is the actively traded tokens or coins available in the market. These tokens are not locked or held by developers, teams or any other entity but are available for trading, buying, selling, or transferring among users. Unlike the total supply, which is the maximum number of cryptocurrency tokens that will ever exist, circulating supply focuses on the portion of tokens in the hands of investors, traders, and the broader market.

Circulating supply plays a vital role in determining a cryptocurrency's market capitalization, which reflects its perceived value and demand for the token.

Additionally, understanding circulating supply is crucial in differentiating between deflationary and inflationary cryptocurrencies like Ethereum.

How do I Calculate Circulating Supply?

Calculating circulating supply varies depending on the cryptocurrency in question. In most cases, it involves deducting certain token reserves and locked tokens from the total supply. Follow the steps below to calculate the circulating supply:

  1. Begin with the total supply of the cryptocurrency.
  2. Deduct any tokens held by the project team developers or locked in smart contracts.
  3. Exclude reserved tokens for specific purposes, such as ecosystem development, partnerships, and future use.
  4. Subtract burden tokens or those permanently removed from circulation.

Following this process, we arrive at the circulating supply, representing the portion of tokens freely circulating in the market.

Significance of Circulating Supply

The circulating supply of a token plays a crucial role in determining the potential of a crypto investment. It is essential for the following reasons:

  • Market Capitalization Calculation: Circulating supply is vital in determining a crypto's market cap. By multiplying the price per token by the circulating supply, we can get an estimate of the overall value of the crypto in the market.
  • Price and Liquidity Impact: Circulating supply directly affects a token's price and liquidity. A higher circulating supply may result in lower token prices, while a lower circulating supply may drive up prices due to increased scarcity.
  • Investor Sentiment: Circulating supply may affect investor sentiment and market perception. Investors often consider the ratio of circulating supply to total supply when assessing a crypto's potential for future price appreciation or volatility.

Deflationary vs. Inflationary Cryptocurrencies

The concept of deflationary and inflationary cryptocurrencies is vital to understanding circulating supply.

  • Deflationary Cryptocurrencies: Deflationary crypto are designed so that their circulating supply decreases over time. Deflation can be achieved through token burning, where some tokens are deliberately destroyed or permanently removed from circulation. As the supply diminishes, the value of each token may increase, which may result in price appreciation.
  • Inflationary Cryptocurrencies: Inflationary cryptocurrencies are designed to increase their circulating supply gradually. This can be accomplished through mechanisms such as token minting or regular token releases. An increased supply may affect the token's price and overall market dynamics.

Crypto Market Capitalization Calculator

Market cap is a valuable metric to help investors assess the value and potential of a cryptocurrency. It provides an overview of a crypto's size and relative position within the market.

To calculate the market capitalization, you multiply the price per token by the circulating supply:

Market Capitalization = Price per Token x Circulating Supply

Market cap calculators allow investors to gain insights into the relative size of different cryptocurrencies and compare them to make informed investment decisions.

Good to Know

How does circulating supply impact a crypto's price?

A higher circulating supply may result in lower token prices, while a lower circulating supply may lead to increased scarcity and potentially drive up prices due to higher demand.

What is the role of circulating supply in market capitalization?

Circulating supply is vital in determining a cryptocurrency's market cap, providing an estimate of its overall value in the market.

Can the circulating supply of a cryptocurrency change over time?

Factors such as token burning, token minting, or the release of previously locked tokens can change the circulating supply.

What is the difference between total supply and circulating supply?

Total supply is the maximum number of tokens that will ever exist while circulating supply is the portion of tokens actively circulating and available for trading.

Where can I find the circulating supply of a specific cryptocurrency?

Reliable cryptocurrency tracking websites may list the circulating supply. You may also find the circulating supply in a project's official documentation.

Final Thoughts

Understanding circulating supply is essential for navigating the cryptocurrency landscape effectively. By understanding circulating supply, calculating market capitalization, and discerning the impact of circulating supply on prices and investor sentiment, you may gain valuable knowledge to make informed investment decisions. Keep updated on the circulating supply of specific cryptocurrencies of interest, as it serves as a fundamental metric in assessing their potential value and market dynamics.

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