In cryptocurrencies and traditional financial markets, circulating supply is an important concept that refers to the total amount of specific cryptocurrencies or assets that can be traded in the current market. Understanding the circulation supply is crucial for evaluating the market value, scarcity, and investment potential of cryptocurrencies.

Definition of circulating supply

Circulating Supply: refers to the total amount of cryptocurrency available for public trading in the current market. Unlike Total Supply and Max Supply, circulating supply does not include tokens that are locked, retained, or destroyed.

The role and importance of circulation supply

Market value assessment:

The product of circulating supply and current market prices determines the market capitalization of cryptocurrency, which is a key indicator for measuring the value of cryptocurrency.

Market capitalization=circulating supply x current price

Scarcity assessment:

The circulation supply helps investors evaluate the scarcity of cryptocurrencies. A lower circulation supply usually implies higher scarcity, which may lead to higher value.

Price impact:

Understanding the circulation supply can help investors predict market price fluctuations. If a large number of tokens enter the market from a locked state, it may have an impact on prices.

The difference between circulating supply, total supply, and maximum supply

Total Supply:

It refers to the total amount of cryptocurrencies that have already been generated and exist, including the parts that have been destroyed, but not the parts that may be generated in the future.

Max Supply:

It refers to the maximum possible total amount that can be generated throughout the entire lifecycle of a cryptocurrency project. Not all cryptocurrencies have a maximum supply limit, for example, Bitcoin has a maximum supply of 21 million.

Methods for calculating circulation supply

The circulation supply is usually calculated by project teams or third-party data providers and published on market data platforms such as CoinMarketCap, CoinGecko, etc. When calculating, the following factors need to be considered:

Number of tradable tokens:

Calculate the number of freely tradable tokens in the current market.

Locking and unlocking plan:

Considering that certain tokens may be locked by project teams, early investors, or agreements for a period of time until specific conditions are met before being unlocked.

Destruction mechanism:

Some projects may have a mechanism for regularly destroying tokens to reduce total supply and increase scarcity.

Practical examples

Bitcoin (BTC):

Circulation supply: As of 2024. approximately 19 million bitcoins are circulating in the market.

Maximum supply: 21 million bitcoins.

Ethereum (ETH):

Circulation supply: Ethereum does not have a fixed maximum supply, but its circulation supply continues to increase with the addition of ETH each year.

Total supply: The total amount of ETH generated currently.

The circulation supply is one of the important indicators for understanding and evaluating the cryptocurrency market. It affects market capitalization, scarcity, and price fluctuations in multiple aspects. When analyzing cryptocurrencies, investors should comprehensively consider factors such as circulating supply, total supply, and maximum supply to make wiser investment decisions.