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Circulating Supply

Circulating supply is the total amount of a cryptocurrency that is publicly available and actively circulating in the market. It's the number of coins or tokens that are being traded, held in public wallets, and not locked up by the project team, in company treasuries, or otherwise restricted.

What Circulating Supply is

Circulating Supply is the current number of coins in circulation on the blockchain. For example, Bitcoin has a circulating supply of approximately 19 million out of a maximum supply of 21 million. Ethereum has about 121 million coins in circulation.

How Circulating Supply is Calculated

Circulating Supply is calculated using the formula:

Circulating Supply = Market Capitalization / Cryptocurrency Price

This formula estimates the number of coins available in the market. It divides the total market value of the cryptocurrency by its current price per unit.

Difference Between Circulating Supply and Total Supply

While Circulating Supply refers to the coins available for trading, Total Supply includes all coins that have been mined or created, minus any that have been burned or destroyed.

Total Supply includes both circulating coins and those that are locked, reserved, or not yet released into the market.

  • Circulating Supply: Coins available for trading.
  • Total Supply: All issued coins, including those not in circulation.

For example, Shiba Inu (SHIB) has a circulating supply of 589 trillion out of an initial total supply of 1 quadrillion. Over half of its tokens are burned to reduce market dilution.

Impact on Cryptocurrency Price

Circulating Supply significantly influences the price of a cryptocurrency.

Generally, a higher circulating supply can lead to a decrease in price due to dilution. A lower supply can increase the value due to scarcity.

  • High Circulating Supply: Can lower the price if demand stays the same.
  • Low Circulating Supply: This can increase the price if demand grows.

Bitcoin’s circulating supply is around 90% of its maximum supply. This ensures its value remains stable as the number of new coins is minimal.

Token Burning and Circulating Supply

Token burning is the process of permanently removing a certain amount of cryptocurrency from circulation. This reduces the circulating supply.

Token burning can positively affect the price by increasing scarcity.

Projects like Binance's BNB regularly burn tokens to decrease the total supply. This enhances the value of the remaining coins.

Investment Considerations

When evaluating a cryptocurrency for investment, examine the ratio between its circulating and total supply.

  • High Percentage Circulation (>80%): Indicates stability but may limit future growth.
  • Low Percentage Circulation (<50%): Suggests potential for dilution and increased risk.

Investors should ensure that the circulating supply does not risk sudden increases. Such increases could dilute the value of their holdings.

Things to Remember

  • Circulating Supply Defined: Represents the number of cryptocurrency coins available for trading. It distinguishes from the total supply which includes all mined or created coins.
  • Calculation Method: Calculated by dividing the market capitalization by the current price per coin. It estimates the actively trading coins within the blockchain ecosystem.
  • Impact on Price: A higher circulating supply can dilute the value and lower the price. A lower supply can enhance scarcity and increase the cryptocurrency’s value.
  • Investment Implications: Evaluating the ratio between circulating and total supply is crucial. It helps assess stability and risks of supply dilution, aiding informed investment decisions.