Intro to Circulating Supply in Cryptocurrency
The sheer amount of activity and progression currently happening in the crypto world and on the blockchain – between new coins, progressing a crypto project, and new use cases, among many other reasons – can be nothing short of mind boggling. This phenomenon can overwhelm even seasoned veterans in the industry, so let’s start with the basics and learn exactly what the circulating supply in cryptocurrency means, how it impacts a coin’s market price, and the expectation of return on a given cryptocurrency investments.
Circulating Supply in Cryptocurrency: Defined
So, the actual definition of the circulating supply in cryptocurrency is how many units of that cryptocurrency are revolving around the crypto market at any one time. Check out the table below for a few of the most popular cryptocurrencies and their current circulating supply:
|Rank (market cap.)||Name||Symbol||Circulating Supply||Maximum Supply||Percent Minted|
As you can see, there are vast differences in the number of circulating supply even just looking at the top 10 total market capitalization of a coin, so you may be realizing that while circulating supply in cryptocurrency is an important metric, it may not be the ultimate metric. And, you would be correct.
Example of Circulating Supply in Cryptocurrency
The circulating supply of cryptocurrency also massively depends on the total supply of a cryptocurrency. Let’s take an extreme example: Let’s say I create an initial coin offering where the total amount of coins to ever be created is going to be 10. Then, I put nine of these virtual tokens into active circulation by giving them away to friends and family, and now there is only one remaining to the general public.
Now, let’s compare that example to the structure of, say, XRP in the table above. We can see that XRP has over 48 billion coins in circulation but less than 50% of it’s 100 billion total fixed supply. My token has 9 coins in circulation – a low circulating supply indeed – but 90% of the overall supply already minted.
By no means does this comparison demonstrate that one coin is better than the other. You may have even noticed that some of the top 10 coins shown in the table above have an unlimited supply! It just means there can be wildly significant fluctuations from one asset to the next, so the circulating supply of a cryptocurrency should be just one of the variables you consider in your research of crypto assets. There are many other factors to consider for reliable knowledge, which we’ll talk about next.
Consider These Components with Circulating Supply in Cryptocurrency
The nearly countless amount of coins in the digital currency world also have a nearly unlimited set of use cases for each of those coins. These use cases, monetary policy, block reward structure, and maximum supply are the other components to consider after you’ve researched the circulating supply of crypto.
In the example above, it would be a wise assumption to believe the XRP team are infinitely better developers than I am with my low supply coin. The development team of a project is arguably the most critical piece of the puzzle, as a bad team can only sneak by for so long, while good teams will generally thrive, given the proper financial market and other circumstances. This is especially true when looking at the grant distribution and realizing a good team will have more early investors backing the project.
Smart Contracts and Other Features
All coins in the cryptocurrency market serve a purpose (even if that purpose is a meme, cough Dogecoin cough…), but that purpose has to show actual results. The main difference between Bitcoin and Ethereum is that Ethereum can (and does) support smart contracts, while Bitcoin cannot. These features are a huge factor in the market price of a cryptocurrency.
While definitely an imperfect approximation of value, the trading volume and medium of exchange have a very real impact on the price of the coin. This is due to a fact that can be proven back in my example token where the number of tokens is very low, at 10. While yes, the low number of cryptocurrency coins could be seen as “rare” and potentially more valuable in the open market, in reality, there is likely not a single person that would buy that coin from you, no matter the current price. This causes the trading volume to be extremely low, so even with the finite supply, there isn’t anyone to buy it. When investors look to an asset to put their money, they want the opportunity to sell it back at some point in the future.
Coin Burn Events
A particular cryptocurrency could have any amount as it’s total number of coins and circulating supply quantity. However, you must also know what will be done over a period of time with those coins. By this I mean that some coins simply have a gradual increase of supply until it hits it’s maximum – a good example of this is Bitcoin. Other cryptocurrencies have don’t even have a set amount, like several in the top 10 table above. Most interestingly, some coins actually burn their own coin…on purpose! There can be many reasons for this that we can’t get into in this article, but one of the major examples is Ethereum.
Final Thoughts on Circulating Supply in Cryptocurrency
Hopefully, reading through this gave some insight into what the circulating supply of cryptocurrency means, a better understanding of the subject, as well as some other, likely more important components that is considered in an asset’s price.
Let us know if you have any questions or thoughts on the subject! For a deeper dive on many other subjects in crypto, check out our articles on whether or not crypto mining damages a GPU, guides on how to get crypto price alerts and how to build a DIY crypto mining rig, as well as the best ways to display NFT art and the best cryptocurrency newsletters and best subreddits.