Understanding Token Supply Terms
When discussing cryptocurrencies and blockchain technology, the terms circulating supply, max supply, and total supply are likely to come up. These three concepts are related but have distinct definitions that are important to understand in order to gain insight into a cryptocurrency’s market dynamics.
Circulating supply is the number of coins or tokens that are currently available on the open market. This number excludes coins or tokens that are held by founders, project developers and other early stakeholders who do not trade their coins on the open market. The term “Open Market” unfortunately does not include wallets that trade within DEX’s.
Max supply is the total amount of coins or tokens that will ever exist in a given cryptocurrency’s economy. The max supply of most cryptocurrencies, including Bitcoin, is limited and programmed into the protocol’s code. This limit is put in place to prevent inflation caused by an increase in the money supply.
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Total supply is different from max supply, as it includes coins or tokens that have already been minted or mined onto that particular blockchain. This number is usually larger than the circulating supply due to coins being held by founders, project developers, and other early stakeholders who do not trade their coins on the open market.
Understanding the differences between circulating supply, max supply, and total supply can provide valuable insight into how a cryptocurrency works and its market dynamics. By gaining an understanding of these concepts individuals can make more informed decisions when evaluating potential investments in the cryptocurrency space.
Individuals looking at entering into cryptocurrencies should weigh these elements when devising a strategy as they will help determine the future potential of a coin. For instance, a coin with a large max supply may experience high inflation due to the number of coins in circulation and subsequently lower prices than those with smaller max supplies. On the other hand, if there are fewer coins available in circulation compared to its total supply, investors can anticipate higher demand which could result in price appreciation over time. Therefore, it is important to know all three metrics when assessing which cryptocurrencies to invest in and how much capital to allocate for each one.
There are other variables to take into consideration when choosing coins vs supply; such as what part of the cycle are we in, how much is owned by single entities (whales), what is the pattern for buys and sells from these entities, what is the roadmap for the token and what type of liquidity are they going to need from the token…etc. Token supply is only one part of what can be a very complicated formula.
With this knowledge, investors can create a well-informed plan.
