When looking at the different coins and tokens that make up the cryptocurrency space, you’ll often see a couple of different metrics that are used to gauge each asset. A coin’s “tokenomics,” or economic model, can be thought of as the underlying foundation that governs how the currency behaves and interacts with the market.
Two key metrics that are closely watched by traders and investors are “circulating supply” and “total supply.” And though these two terms are often used interchangeably, they actually have very different meanings.
So, what is circulating supply in crypto? And what’s the difference between circulating supply and total supply? This article will break down everything you need to know about these key concepts.
What is Crypto Circulating Supply?
When developers decide to create a new cryptocurrency, there’s a wide array of technical and economic factors they need to consider. Depending on the new currency’s intended function, use case, and overall goals, the developers will determine how transactions will be verified, how new units of the currency will be created or “minted,” and what the maximum supply of the coin or token will eventually be.
Once the currency is live and trading on exchanges, its “circulating supply” refers to the number of coins or tokens that are available for trading in the market by the general public. Circulating supply is the metric that determines how much of a particular asset is actually “in circulation” and it’s a way to get an idea of how much of a currency is used by people on a day-to-day basis.
Circulating supply is a good metric to use when trying to gauge the current liquidity of a currency, but it’s important to note that it’s not the same thing as its “total supply” or “maximum supply”.
Circulating Supply vs. Total Supply
The main difference between circulating supply and total supply is that circulating supply refers to all coins that are currently “in circulation” and being traded on exchanges and between individuals, while total supply includes all coins that have ever been created (minted) by the developers, even if they’re not currently being traded.
For example, say a cryptocurrency has a total supply of 10 million units and a circulating supply of 5 million units. This means that 5 million units are currently being traded on exchanges, while the other 5 million units have yet to be minted or have been “locked up” by the developers and are not currently available for trading.
Knowing the difference between these two key concepts is important, because it can give you a better idea of how a currency is being used and what the future supply might look like.
Another key concept to be aware of is “maximum supply.” Unlike circulating supply or total supply, maximum supply refers to the absolute upper limit of how many units of a currency can ever exist.
For example, Bitcoin has a maximum supply of 21 million units. This means that no matter how much the price of Bitcoin goes up, how many people buy or sell BTC, or how many new units are “mined,” the maximum number of Bitcoin that can ever exist is 21 million.
Deflationary vs. Inflationary Tokenomics
Different cryptocurrencies have different economic models, which can be classified as either “deflationary” or “inflationary.”
A deflationary currency is one in which the circulating supply decreases over time. For example, Ethereum implemented a protocol upgrade in August 2021 titled “EIP-1559.” With this upgrade, a portion of ETH is burned from its supply every time a transaction takes place on the network. With enough demand, this tokenomics model could make Ethereum “deflationary,” as the rate of ETH burning would outpace the amount of ETH being added to the supply.
While Bitcoin is technically inflationary, as it follows a supply schedule that releases new coins into circulation over time, it can be argued that Bitcoin is deflationary because the rate at which coins decrease from its supply far outweighs the inflation rate.
Figure 1: Bitcoin reserves on exchanges (purple) vs. BTC price (black)
An inflationary currency is one in which the circulating supply increases over time. Dogecoin, the popular meme-based cryptocurrency, was built with an inflationary economic model and has an infinite supply. This means that new Dogecoins are constantly being “minted” and added to the circulating supply, which can lead to inflation over time.
Importance of Crypto Circulating Supply
Circulating supply is important because it’s a good metric to use when trying to gauge the “liquidity” of a currency. Liquidity refers to how easily an asset can be bought or sold without having a significant impact on the price.
For example, Bitcoin is considered to be a highly liquid asset because it has a large circulating supply and a lot of people are trading it on a daily basis. This means that you can buy or sell Bitcoin relatively easily without having to worry about the price being too volatile.
On the other hand, a cryptocurrency with a small circulating supply and not many people trading it is considered to be “illiquid”, meaning that it might be more difficult to buy or sell the currency, and the price could be more volatile.
It’s also important to think about a currency’s circulating supply when considering its overall economic model. For example, a deflationary currency like Bitcoin is likely to become more valuable over time as the circulating supply decreases and demand increases.
Different coins use different schemes to achieve their desired economic model. For example, coins like FTX Token (FTT) employ regular token burns to apply deflationary pressure to the asset’s price. This means that even though FTT has a relatively high circulating supply, the supply is constantly decreasing, which can apply upward pressure on the asset’s price over time.
FTX burns FTT equivalent to:
- 33% of generated transaction fees on FTX
- 10% of additions to FTX’s “Socialized Gains” backstop fund
- 5% of fees earned through other FTX functions
So far, FTX has burned over 20 million of the 191 million tokens in FTT’s circulating supply.
Measuring Circulating Supply
Circulating supply is the amount of coins or tokens that are available for trading in the market by the general public. It’s a good metric to use when trying to gauge the “liquidity” of a currency. However, it’s important to note that it’s not the same thing as “total supply” or “maximum supply.”
Popular market aggregators like CoinMarketCap and CoinGecko are great resources for finding the circulating supply of any given project. To find them, simply look up any given cryptocurrency and refer to its “Circulating Supply” measure, located underneath the cryptocurrency’s price.
While these are important metrics that you can use to judge whether a particular asset is right for you, an asset’s supply level is just one of many factors to consider.
To make an informed investment decision, it’s also a good idea to look at metrics like recent trading volumes and the token’s market capitalization. Be sure to read the project’s whitepaper to get a full grasp on exactly how the asset you’re purchasing works.
If you’re interested in learning more about cryptocurrency, be sure to check out our library of informative articles on the FTT DAO blog. From beginner explainer articles to in-depth discussions of blockchain technology, FTT DAO is dedicated to spreading the word about this exciting industry.
Finally, follow FTT DAO on Twitter today to stay up-to-date with the latest news and analysis from across the cryptocurrency industry and get involved in the community.