Circulating Supply
- Circulating Supply: A Beginner's Guide
What is Circulating Supply?
Imagine you're baking cookies. You have a recipe (the total supply of a cryptocurrency), but you haven't baked all the cookies yet. The *circulating supply* is how many cookies are actually *out there*, being enjoyed (or traded!).
In the world of cryptocurrency, circulating supply refers to the number of coins or tokens that are publicly available for purchase and trading. It’s a crucial piece of information when you're considering investing in a digital asset. It's *not* the same as the total supply.
Total Supply vs. Circulating Supply
Let's break down the difference with an example:
Suppose "DogeBonk" (DBK) is a new cryptocurrency.
- **Total Supply:** 100 billion DBK – this is the maximum number of DBK coins that will *ever* exist. This is defined in the coin’s code.
- **Circulating Supply:** 20 billion DBK – this is the number of DBK coins that are currently in the hands of the public, available on cryptocurrency exchanges like Register now or being held in wallets.
The other 80 billion DBK might be:
- Held by the development team.
- Locked up for future rewards (like in staking.
- Reserved for future projects.
Understanding this difference is vital because the circulating supply directly impacts the price of a cryptocurrency.
Why Does Circulating Supply Matter?
The circulating supply is a key factor in determining a cryptocurrency's market capitalization (often called "market cap").
- Market Capitalization = Circulating Supply x Current Price**
Here's why that matters:
- **Price Discovery:** A lower circulating supply, with high demand, *can* lead to a higher price. Think of it like a rare collectible – fewer available copies mean higher value.
- **Market Manipulation:** A very low circulating supply can make a cryptocurrency more susceptible to price manipulation. It doesn’t take much money to move the price if only a few coins are available.
- **Investment Decisions:** Knowing the circulating supply helps you assess the true scarcity of a cryptocurrency. Is it truly limited, or are there a lot more coins waiting to be released?
Comparing Cryptocurrencies: Circulating Supply in Action
Let’s compare two popular cryptocurrencies:
| Cryptocurrency | Total Supply | Circulating Supply (as of October 26, 2023) | Approximate Price (October 26, 2023) | Market Capitalization |
|---|---|---|---|---|
| Bitcoin (BTC) | 21,000,000 | 19,288,625 | $34,345 | $662.8 Billion |
| Dogecoin (DOGE) | 128.94 Billion | 146.84 Billion | $0.066 | $9.69 Billion |
Notice how Bitcoin has a significantly lower circulating supply, and a much higher price and market cap compared to Dogecoin. While many factors contribute to this, circulating supply plays a role.
Where to Find Circulating Supply Information
You can find circulating supply data on several websites:
- CoinMarketCap
- CoinGecko
- The official website of the cryptocurrency itself.
- TradingView for real-time data and charting.
Always double-check the information from multiple sources.
How Circulating Supply Affects Trading
As a trader, understanding circulating supply can help you with:
- **Technical Analysis:** Changes in circulating supply (e.g., a large release of tokens) can impact price charts.
- **Fundamental Analysis:** Assessing the long-term viability of a project based on its tokenomics (the economics of the token, including supply).
- **Trading Volume Analysis:** Monitoring trading volume alongside circulating supply changes can reveal market sentiment.
- **Scalping:** Taking advantage of small price fluctuations based on news regarding circulating supply.
- **Swing Trading:** Holding a cryptocurrency for a few days or weeks, anticipating price movements related to supply changes.
- **Day Trading:** Buying and selling within the same day, reacting to immediate supply-related news.
- **Arbitrage:** Exploiting price differences for the same cryptocurrency on different exchanges, potentially influenced by supply variations.
- **Position Trading:** Long-term investing based on the overall tokenomics and potential supply dynamics.
- **Trend Trading:** Identifying and following trends in price movements, which can be affected by supply changes.
- **Breakout Trading:** Capitalizing on price breakouts that may occur due to significant supply adjustments.
For example, if a project announces a large unlock of tokens (increasing the circulating supply), you might anticipate a price decrease and consider strategies like short selling (though this is risky!). You can trade on Join BingX or Open account.
Important Considerations
- **Token Unlocks:** Pay attention to scheduled token unlocks. These releases of previously locked tokens can increase the circulating supply and potentially affect the price.
- **Burning:** Some cryptocurrencies employ a "burning" mechanism, permanently removing coins from circulation, which *can* increase scarcity and potentially the price.
- **Inflationary vs. Deflationary:** Understand whether a cryptocurrency is inflationary (supply increases over time) or deflationary (supply decreases over time).
- **Vesting Schedules:** Many projects use vesting schedules for team tokens, releasing them gradually over time. This impacts the circulating supply.
Further Learning
- Tokenomics
- Market Capitalization
- Scarcity
- Digital Wallet
- Blockchain Technology
- Cryptocurrency Exchange
- Trading Bots
- Decentralized Finance (DeFi)
- Smart Contracts
- Risk Management
- You can start trading futures on BitMEX and Start trading
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⚠️ *Disclaimer: Cryptocurrency trading involves risk. Only invest what you can afford to lose.* ⚠️