Tokenomics: Circulating Supply and Total Supply in Cryptocurrency

Investing in cryptocurrencies requires an understanding of tokenomics, which examines a token's design, supply, and economic model. Two critical metrics to analyze are the circulating supply and total supply. These factors directly influence a cryptocurrency’s market value and investment potential.

Circulating Supply

The circulating supply is the number of cryptocurrency tokens actively available in the market. For instance:

• Bitcoin (BTC) has a circulating supply of approximately 19 million coins out of its maximum supply of 21 million.

  
  

• Ethereum (ETH) has about 121 million tokens currently circulating.

  
  

A high circulating supply (relative to the maximum supply) often stabilizes a coin’s value because it minimizes the risk of sudden supply shocks. On the other hand, projects with a low circulating supply percentage are more susceptible to value dilution if new tokens are introduced.

Formula to Calculate Circulating Supply

To determine circulating supply:

Market Capitalization ÷ Current Price = Circulating Supply

This metric allows traders to compare cryptocurrencies and make informed decisions.

Impact on Price

Circulating supply and price share an inverse relationship under constant demand:

• Low Supply: Generally correlates with a higher price (e.g., Bitcoin).

  
  

• High Supply: Correlates with a lower price (e.g., Shiba Inu with trillions in supply but a low per-token price).

  
  

Burning tokens (removing them from circulation) reduces the circulating supply, potentially increasing a token’s value. For example, Shiba Inu implements token burns to manage its massive supply, which helps stabilize its price.

Total Supply

The total supply encompasses all coins minted or created, including those not yet circulated or locked in smart contracts. Unlike circulating supply, total supply includes:

1. Burnt Tokens: Coins permanently removed from circulation.

   
   

2. Unreleased Coins: Coins not yet distributed or traded.

   
   

Example: The downfall of LUNA occurred when its total supply ballooned from 300 million to over 6.5 trillion during the UST stablecoin crisis. This sudden oversupply caused the price to plummet from $80 to nearly zero.

Key Differences: Circulating Supply vs. Total Supply

Investment Tips

• Look for projects with >80% circulating supply for more stability.

  
  

• Be cautious of projects with <50% circulating supply, as future token releases could dilute value.

  
  

• Verify the project’s tokenomics to ensure sustainable supply management, such as controlled releases or periodic burns.

  
  

Summary

Understanding circulating and total supply helps investors gauge a cryptocurrency's potential stability and growth. A robust analysis of these metrics, combined with an evaluation of market capitalization, token utility, and project fundamentals, forms the backbone of informed cryptocurrency investment decisions.

Disclaimer and Risk Warning: This content is provided solely for informational and educational purposes, with no guarantees or warranties. It should not be interpreted as financial, legal, or professional advice, nor does it serve as a recommendation to purchase any specific product or service. Consulting with qualified professional advisors is recommended for personalized guidance.