Circulating, maximum and total Crypto token supplies explained.

The total supply of a cryptocurrency is the sum of all tokens in circulation, plus those held in escrow or locked up in a smart contract. The maximum supply refers to the upper limit on the number of tokens that can be created, while the circulating supply is the number actually available for trade.

All of the cryptocurrency supply metrics are key for understanding a project’s token distribution, demand and market capitalisation. They also impacting the price of cryptocurrencies and are essential judgement criteria for investors.

The supply of most cryptocurrency tokens cannot be increased or decreased at the free will of a central banks, as opposed to fiat currencies. A token’s initial supply can all be released simultaneously, but is more often mined over time – such as in the case of proof-of-work (PoW) or minted in the case of proof-of-stake (PoS) coins.

Some cryptocurrencies have a maximum supply while others, like Bitcoin (BTC), only have a finite 21 million. Ethereum’s (ETH) cryptocurrency doesn’t have a hard-cap like BTC, but the daily issuance was set at 1,600 ETH after the Merge occurred.

What is a circulating supply?

The term “circulating supply” in cryptocurrency refers to the number of tokens available to be traded at any given time.

The circulation supply metric is used to define the market capitalisation of a given cryptocurrency. A cryptocurrency’s market cap is obtained by multiplying the price per unit by the number of all existing coins in a blockchain, including those that have been lost or confiscated.

The example of Bitcoin and its creator, Satoshi Nakamoto, is somewhat emblematic. He mined millions of BTC in the early years but never moved them. Whatever the reason behind such a decision, all those Bitcoin are still included in the total circulating supply of cryptocurrency.

Realised market cap is a sub-metric of market cap that calculates the price of a coin when it was last moved instead of its current value. Coins that have been lost or are inactive in a blockchain don’t impact realised market cap.

The supply for some cryptocurrencies, like Bitcoin, is finite and only continues to grow through mining. On the other hand, developers of more centralised tokens can suddenly increase their circulation by minting new coins instantly- much like how central banks operate.

The total supply of a cryptocurrency can also decrease when the coins are “burned.” This happens when the coins are sent to a wallet whose keys aren’t accessible to anyone. So, it’s best to think of the circulating supply metric as an estimate.

What is the maximum supply?

Every cryptocurrency has a maximum supply, meaning the total number of tokens that will ever exist. This amount is usually decided when the project’s genesis block is created

There is a maximum supply of 21 million Bitcoins, and although anything could happen, its protocol and code are built so that no more BTC can be mined. Other cryptocurrencies don’t have a maximum supply but may limit the number of new coins minted with a set cadence, like Ether does.

In contrast, stablecoins have a maximum supply that never changes to avoid sudden price swings that could be caused by a shock in supply. Their stability comes from reserve assets or algorithms controlling the burning process.

Algorithmically-backed coins have difficulty maintaining a stable price, as they are vulnerable to de-pegging risks. Also, non-algorithmic coins like Tether may fall prey to similar issues; in June 2022, the value of Tether dropped significantly, demonstrating that even theoretically more certain coins can be unstable.

While circulating and total supply also affect a token’s price, they don’t have as much of an impact as the maximum supply. When a cryptocurrency reaches its max supply, no new coins can be created. This results in two main things:

• The cryptocurrency becomes more scarce and as a result, its price may increase if demand exceeds supply;
• Miners have to rely on fees to get rewards for their contributions.

Bitcoin’s total supply gets cut in half through a process called the halving, so it is estimated that the maximum supply of 21 million coins will be reached in 2140. Although Bitcoin’s issuance grows over time due to mining, block rewards are reduced by half every four years, making it a deflationary cryptocurrency.

What is a total supply?

The total supply of a token is calculated by adding the circulating supply to the number of coins that have been mined but not yet distributed in the market.

Staking rewards are a pool of coins that have already been minted, but they’re locked by the project’s protocol. Only when the staker meets a certain condition do they get access to these funds.

Occasionally, a new cryptocurrency project will be created with a different number of tokens than what is being distributed. This provides more demand for the currency and stops it from becoming over supplied which would lower the price.

Some developers create tokens at a blockchain’s launch as premine to use as development funds but have not been circulated yet. Additionally, burned coins or tokens are not calculated in the total supply because they are permanently locked up in an address that nobody will ever be able to access.

The total token supply can be increased, depending on the cryptocurrency protocol’s rules. For example, with Bitcoin, unless there is almost unanimous agreement to change the protocol, its unchangeable total supply of 21 million coins can’t be changed. However, for other tokens, developers could possibly change a protocol’s supply rule by coding in a variable into the smart contract ahead of time.

Total supply vs. maximum and circulating supply

Having a firm understanding of circulating and maximum supply can help assess their impact on the cryptocurrency’s price.

Since the future value of a cryptocurrency is so important to investors, it’s crucial that they stay up-to-date with changes in total and circulating supply. This way, they can plan their investment strategy around how each metric performs against the others.

Just like stocks in the stock market, cryptocurrency coins or tokens’ prices are reflective of supply and demand. The more abundantly available the coin is, the higher level of demand needed for an increase in price.

The lower the supply of a token, the more scarce it is. If there is high demand for a scarce token, its price will likely rise. However, if there is low demand for cryptocurrency with a large supply, its price may drop.