What Is Circulating Supply In Crypto?

To operate in the crypto space with confidence, it’s essential to know and understand a lot of specific terms and concepts. That’s why today we’ve decided to discuss the aspect of cryptocurrency called circulating supply, researching it in detail. Let’s get started!

What Does Circulating Supply Mean?

Circulating supply is the total number of coins and tokens that are available for trading and further use by holders. It’s important because the circulating supply helps determine key metrics in the cryptocurrency market, such as its fully diluted valuation (FDV).

Some also may confuse circulating supply for the market cap of a currency. But the difference is quite obvious: while circulating supply means the number of tokens available for trading, the market cap reflects the total value of the cryptocurrencies in circulation based on their current price. For example, if a crypto has a circulating supply of 10 million coins and the cost per coin is $10, the market cap would be $100 million.

You also might’ve heard of a zero circulating supply, but what is it? Zero circulating supply means that cryptocurrency or tokens have no coins available for trading or use in the market at the moment. This might happen for several reasons, such as the crypto being a new project that just launched. It also might happen temporarily after the burning of a currency or when the project has allocated a portion of tokens for development, team members, or investors, but those coins haven’t been made available to the public yet.

How Circulating Supply Affects Crypto Price?

Circulating supply plays a critical role in determining the price of a cryptocurrency, having a direct relationship with market valuation and movements. Here are the areas that it influences:

1. Supply and demand. Like any asset, the price of a cryptocurrency is primarily determined by the law of supply and demand. When there is a low circulating supply and high demand for a particular coin, its price tends to rise. Conversely, if a crypto has a large circulating supply and demand remains constant, the price may remain stable or decrease because there are more tokens available in the market.
2. Scarcity and abundance. The concept of scarcity plays a significant role in determining value. When fewer coins are available (low circulating supply), each of them has the potential to be more valuable, assuming demand is high. This scarcity factor is often the reason why investors believe that crypto with a low circulating supply will have higher price appreciation over time. On the other hand, a cryptocurrency with a high circulating supply can be seen as less scarce, making each coin less valuable (in terms of price per coin) unless there is a proportionate increase in demand.
3. Price dilution. When new coins are added to the circulating supply, whether through mining, staking rewards, or scheduled token releases, the price may experience dilution. This means the price can decrease, assuming demand doesn’t keep up with the increase in supply. This is especially true for cryptocurrencies that release a large portion of their supply over time. For instance, if a project has a total supply of 1 billion coins, but only 100 million are in circulation, there is an expectation that the remaining 900 million will eventually enter circulation. This can cause price dilution unless the project can sustain demand or introduce mechanisms to limit the inflation of its token supply.

Pros And Cons Of High Circulating Supply

So, is a high circulating supply good or bad? It can have both positive and negative effects, depending on the context and the specific cryptocurrency. Let’s break them down.

Advantages Of High Circulating Supply

Here are some positive effects of high circulating supply:

• Stability: a large circulating supply can sometimes contribute to price stability. If a cryptocurrency has a significant number of coins circulating, the price may be less prone to drastic fluctuations, as there is a larger pool of liquidity in the market.
• Liquidity: high circulating supply generally means there are more tokens available for trading. This can create liquidity, which makes it easier for traders to buy and sell without significant price slippage.
• Wider distribution: a higher circulating supply can signal that a cryptocurrency has been widely distributed to users and investors. This may indicate that the project has been successful in attracting and involving a broad base of participants.

Disadvantages Of High Circulating Supply

However, there are some negative outcomes that may occur:

• Price depreciation: a large circulating supply can lead to price devaluation if the demand for the cryptocurrency does not increase at the same rate. More tokens in circulation mean less scarcity, leading to lower prices per coin. It can be detrimental because it reduces the overall market value and investor confidence, potentially leading to decreased demand and market instability.
• Inflationary pressure: some projects with high circulating supplies may be prone to inflation if new tokens are constantly being released into the market. This can lead to price dilution, where the value of each coin decreases as more coins enter circulation.
• Reduced value of the coin: investors may perceive a cryptocurrency with a high circulating supply as less valuable compared to one with a low supply, especially if both coins have similar levels of demand. This perception can impact investor interest and price appreciation because investors may believe that a higher supply dilutes the scarcity of the coin, making it less desirable and potentially limiting its future growth in value.

What Is The Difference Between Circulating Supply And Total Supply?

The total supply refers to the total number of coins or tokens that exist overall, including both those currently in circulation (the circulating supply) and those that are locked or reserved for future use.

For your comfort, we’ve arranged all the important differences between circulating and total supplies in one detailed table:

Aspect	Definition	Impact on the market	Availability
Circulating supply	Definition Tokens actively available for trading in the market	Impact on the market Directly impacts the market capitalization and price	Availability Tokens that are ready to be bought, sold, or traded
Total supply	Definition Total number of tokens in existence, including those not in circulation	Impact on the market Does not affect the market but gives an overall view of available coins	Availability Tokens that may be locked, reserved, or not available for trading yet

When the circulating supply reaches the total supply, it means that all the tokens or coins that can ever exist for that cryptocurrency are now in circulation. At this point, no new tokens will be mined or released, and the cryptocurrency will no longer experience inflation due to new supply. This can lead to increased scarcity, potentially driving up demand and price, depending on market conditions.

In conclusion, understanding the concept of circulating supply is crucial for anyone involved in cryptocurrency investment or trading. It directly influences market dynamics, price fluctuations, and investor sentiment. As more coins enter circulation, the supply of a cryptocurrency increases, which can affect its scarcity and value. Monitoring circulating supply alongside other factors such as market demand, utility, and total supply can help investors make more informed decisions. Remember, while a high circulating supply might indicate stability, it’s the balance between supply, demand, and the utility of the crypto asset that ultimately shapes its market value.

What are your thoughts on the topic? Do you have any further questions? Let us know in the comments!