Whether you are reading a crypto-related article or you are on Coinmarketcap checking one specific cryptocurrency out, it is likely that you have stumbled upon the term supply. According to Dictionary.com, the term ‘supply’ stands for “a quantity of something on hand or available, as for use; a stock or store.”
This is the same for cryptocurrencies; the supply of a cryptocurrency shows us how many tokens are there, and how many will there ever be. First off, the supply of a cryptocurrency can be capped or uncapped. A capped supply means that the supply of that specific crypto is finite, while an uncapped supply means that the supply is infinite.
Circulating Supply
The Circulating Supply of a particular cryptocurrency is the approximate number of coins circulating the open market. Bitcoin, for example, has a maximum supply of 21 million, while only 89% of that supply is circulating. That being said, Bitcoin has a circulating supply of 18.7 million.
You can also look at circulating supply as the number of coins available at that particular time or the supply available in the market.
We must note that the circulating supply is what mostly affects the price of a cryptocurrency. For instance, if we don’t know the circulating supply of a cryptocurrency, we simply divide its current market capitalization with its current price and get the amount of circulation coins. The same can be done if we want to know the market capitalization of that cryptocurrency; we simply multiply the circulating supply of that crypto with its current price
Market Capitalization = Circulating Supply X Price
Read more: Cryptocurrency Market Capitalization Explained
Maximum Supply
The Maximum Supply, on the other hand, is the amount of that specific cryptocurrency that will ever exist. As mentioned before, Bitcoin has a maximum supply of 21 million, which means that only 21 million Bitcoins will ever be created. However, there are two types of coins when it comes to their maximum supply – those with a capped supply and those with an uncapped supply.
Capped Supply
Having a capped supply means that there is a limit to how many coins of that specific crypto will ever exist. For instance, Cardano has a capped supply of 45 billion which means that only 45 billion ADA will ever exist. Having a capped supply is considered to be better since it makes cryptocurrency deflationary.
Some examples of coins with a Capped Supply:
Uncapped Supply
Having an uncapped supply means that there is no limit to how many coins there will ever be in circulation; which means that there can be an infinite amount of coins created. Dogecoin and Ethereum, for example, have an uncapped maximum supply. Moreover, uncapped supplies make cryptocurrencies inflationary.
Some examples of coins with an Uncapped Supply:
Also read: What Is Volatility? Definition of Volatility
Takeaways
- The supply of a cryptocurrency is a very important factor and plays a crucial role in its price.
- Circulating Supply is the number of coins available on the market.
- Maximum Supply is the number of coins that will ever exist on the market.
- Maximum Supply can be capped (finite) or uncapped (infinite).