Understanding a cryptocurrency’s supply – how many tokens are available in an economy – is crucial for determining metrics like supply, demand and market capitalization. Indeed, one of the reasons that coins like Bitcoin (BTC) are worth anything at all is that you know precisely how many of them are in circulation at any given moment.
However, things get slightly confusing when wading a little deeper. Tokens available meaning can be defined in multiple ways – the circulating supply is not the same as the total or maximum supply, and distinguishing between the three terms is critical to understanding the size of a cryptocurrency’s economy.
Tokens Available Meaning
As mentioned, tokens available can be represented differently in three main ways, beginning from a token’s maximum supply down to its circulating supply:
Maximum Supply
The maximum supply of a cryptocurrency refers to the maximum number of coins or tokens that will ever be created and available. This means that once the maximum supply is reached, there won’t be any new tokens minted or produced in any other way.
Normally, the maximum supply is capped by the limits defined by the underlying protocol of each digital asset. Therefore, the maximum supply and issuance of new tokens are usually defined at the genesis block according to the project’s source code (which also defines many other features and functionalities).
Setting a steady issuance rate togETHer with a predefined maximum supply can be valuable for controlling the inflation rate of a cryptocurrency, which may potentially lead to a long-term appreciation of the asset. Generally speaking, when the maximum supply is reached, there will be fewer tokens available on the market. This is expected to create market scarcity, which may eventually lead to deflation conditions (or 0% inflation rates).
Total Supply
Total supply refers to the number of coins or tokens that currently exist and are either in circulation or locked somehow. It is the sum of tokens that were already issued minus the total tokens that were burned or destroyed.
Therefore, the total supply includes both the circulating supply and the tokens that are yet to hit the open market. For instance, coins that are being held under a lockup or vesting period, which typically follows a private sale or Initial Coin Offering (ICO) event.
Coins or tokens that are eventually burned are excluded from the total supply. This means that when Binance, for instance, performs its quarterly coin burn events, the total supply of BNB is reduced forever.
Circulating Supply
The term circulating supply refers to the number of cryptocurrency coins or tokens that are publicly available and circulating in the market.
The circulating supply of a cryptocurrency can increase or decrease over time. For example, the circulating supply of Bitcoin will gradually increase until the max supply of 21 million coins is reached. Such a gradual increase is related to the process of mining that generates new coins every 10 minutes, on average. Alternatively, coin burn events like the ones performed by Binance, cause a decrease in the circulating supply, permanently removing coins from the market.
Moreover, the circulating supply of a cryptocurrency can be used for calculating its market capitalization, which is generated by multiplying the current market price with the number of coins in circulation. So if a certain cryptocurrency has a circulating supply of 1,000,000 coins, which are being traded at $5.00 each, the market cap would be equal to $5,000,000.
Circulating Supply Vs. Total Supply Vs. Maximum Supply
The circulating supply refers to the coins that are available to and accessible by the public and should not be confused with the total supply or max supply.
The total supply is used to quantify the number of tokens in existence, i.e., the number of tokens that were already issued minus the tokens that were burned. The total supply is basically the sum of the circulating supply and the coins that are locked up in escrow.
On the other hand, the max supply quantifies the maximum amount of coins that will ever exist, including the coins that will be mined or made available in the future.
Which Is The Most Important Metric?
It’s difficult to say whETHer total, circulating or maximum supply is the most important – each has its own use. However, knowing the differences among them can help you wade through the crypto market and understand how they can influence the price of a token according to its availability.
One key metric is the fully diluted market cap – a product of a token’s maximum supply and its current price. It includes vested tokens and can provide hints that some market actors, like early investors or the project’s team, could sell a whole lot of tokens on the open market once they have access to the coin.
Summary
Now that you have learnt the tokens available meaning in three definitions, you should take a look at coins and tokens listed on CoinGecko or CoinMarketCap to see their metrics in action. Understanding a cryptocurrency’s maximum, circulating, and total supply is important for investors as it can give you an idea of how the price of the token might change in the future.
It is also important to remember that the total supply and circulating supply of a token can change over time and is thus important to keep up with the latest developments for the project.
