You’ve found a promising new crypto project. The price is just a few cents, and you’re thinking, “If this just gets to $1, I’ll be rich!” It’s a common thought, but it’s also one of the biggest mistakes a new investor can make. Focusing on price alone without understanding its context is like trying to gauge a car’s speed without a speedometer. The missing piece of the puzzle is what is circulating supply.
This single metric is the key to unlocking a project’s true valuation, understanding its potential for future growth, and spotting dangerous inflationary risks. It separates a simple price tag from a meaningful investment analysis.
By the end of this guide, you won’t just know the definition of circulating supply; you’ll know how to use it, along with concepts like Fully Diluted Valuation (FDV) and vesting schedules, to evaluate cryptocurrencies like a professional analyst.
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What Is Circulating Supply in Crypto? — A Simple Definition
In simple terms, circulating supply is the total number of a cryptocurrency’s coins or tokens that are actively available to the public and are currently in circulation. These are the coins that are on the open market, ready to be bought, sold, and traded by investors like you.
Think of it as the number of shares of a company that are available on the stock market. It doesn’t include coins that are locked, reserved for the team, or have not yet been mined or created. This number is dynamic and can increase over time as new coins are mined or unlocked, or decrease if coins are “burned” or permanently removed from existence.
Key Takeaways
- It’s the Public Float: Circulating supply represents the coins available on the market right now.
- It’s Used for Market Cap: This is the number used to calculate a crypto’s market capitalization.
- It Excludes Locked Tokens: It does not include coins held by the project’s team, foundation, or venture capitalists that are subject to a lock-up or vesting period.
- It Can Change: The number can increase (through mining/unlocks) or decrease (through token burns).
Circulating Supply vs. Total Supply vs. Max Supply: What’s the Difference? — Core Concepts
To truly grasp circulating supply, you must understand it in relation to two other key metrics: total supply and max supply. These three terms are often confused, but they paint a complete picture of a project’s tokenomics.
Circulating Supply: The Coins Available Today
As we’ve covered, this is the number of coins actively trading and held by the public. It’s the most relevant metric for determining the current market value because it reflects the liquid supply that can influence the price day-to-day.
Total Supply: The Coins That Exist Now (Including Locked Ones)
Total supply is the total number of coins that have been created (or “minted”) so far, minus any coins that have been verifiably burned or destroyed. This figure includes the circulating supply plus any coins that are locked up.
For example, coins held in a treasury by the development team or reserved for investors that haven’t been released yet are part of the total supply but are not part of the circulating supply.
Total Supply = Circulating Supply + Locked/Reserved Coins
Max Supply: The Most Coins That Will Ever Exist
Max supply is the absolute maximum number of coins that will ever be created for a specific cryptocurrency. Once this number is reached, no new coins can be mined, minted, or produced. This number is hard-coded into the protocol.
Bitcoin is the most famous example, with a max supply of 21 million BTC. However, not all cryptocurrencies have a max supply. Ethereum (ETH), for instance, has no hard cap, making it potentially inflationary, although mechanisms like token burns work to counteract this.
Quick Comparison Table (Circulating vs. Total vs. Max)
| Metric | Definition | What It Tells You | Example (Bitcoin) |
| Circulating Supply | Coins publicly available and in circulation. | The current liquid supply affects market price. | ~19.7 million BTC |
| Total Supply | Total coins ever created, minus burned coins. | The current number of coins in existence (liquid + locked). | ~19.7 million BTC |
| Max Supply | The maximum number of coins that can ever be created. | The ultimate scarcity and long-term inflation model. | 21 million BTC |
Why Is Circulating Supply a Critical Metric for Investors? — Practical Application
Understanding the definitions is step one. Step two is applying that knowledge to make better investment decisions. Here’s why circulating supply is so important.
It Determines a Crypto’s True Market Cap
Market capitalization (or “market cap”) is the most common metric used to rank cryptocurrencies. It represents the total network value of a project. It is not calculated with total or max supply, but with circulating supply.
The formula is simple and crucial:
A coin with a low price but a massive circulating supply can have a much larger market cap than a coin with a high price and a small supply. This is why you can’t just look at the price per coin.
It Helps You Understand Scarcity and Potential Value
The economic principle of scarcity states that if demand is high and supply is limited, the value of an asset will likely increase. Circulating supply, in conjunction with max supply, gives you a clear picture of a token’s scarcity.
A project like Bitcoin with a finite max supply and a predictable issuance schedule is considered ‘hard money’ because its scarcity is guaranteed. During periods when price reaches an all-time high, the circulating supply can shrink relative to market demand, highlighting scarcity.
It Signals Potential Inflation and Sell Pressure
If a project’s circulating supply is only a small fraction of its total or max supply, it’s a major red flag that requires further investigation. This gap means a large number of coins are currently off the market but could be released in the future.
When these locked tokens are released into the circulating supply, it can create significant sell pressure, diluting the value for existing holders. This is a form of token inflation. Analyzing the gap between circulating and total supply helps you anticipate this risk.
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Create Your Account in Under 3 MinutesHow to Analyze Circulating Supply Like a Pro?
Serious investors go beyond the basic definition. They use circulating supply as a starting point to dig into a project’s tokenomics—the economic rules governing the crypto asset.
Go Beyond Market Cap: Understanding Fully Diluted Valuation (FDV)
While market cap tells you a project’s value today, Fully Diluted Valuation (FDV) tells you its theoretical market cap if all of its tokens (its max supply) were in circulation.
The formula is:
Comparing Market Cap to FDV is powerful, but it’s also useful to consider how circulating supply interacts with crypto volume. Higher liquidity can absorb more coins entering circulation, reducing price volatility.
- If Market Cap is close to FDV: This is a good sign. It means most of the tokens are already in circulation, and the risk of future dilution is low. (e.g., Bitcoin)
- If Market Cap is much lower than FDV: This is a red flag. It signals that a huge number of tokens are yet to be released, which could flood the market and suppress the price.
Check the Vesting Schedule: Are Large Unlocks Coming?
When the FDV is high, your next question should be: “When are those locked tokens being released?” The answer lies in the project’s vesting schedule. This is a timeline that dictates when tokens reserved for the team, advisors, and early investors are unlocked and can be sold.
A project with a huge “cliff unlock” (a single event where a large percentage of tokens are released) is incredibly risky. You should look for projects with a gradual, linear vesting schedule spread out over several years.
Look for Token Burns: Is the Supply Deflationary?
Some projects actively reduce their total supply through token burns. This is a process where tokens are sent to an unusable wallet, effectively removing them from existence forever.
Token burns are a deflationary mechanism. By reducing the supply, they can make the remaining tokens more scarce and potentially more valuable, assuming demand stays constant or grows. Projects like **Binance Coin (BNB) has a well-known burn mechanism, which aims to make its supply deflationary over time.
Case Study: Comparing Two Coins (e.g., Low vs. High Inflation)
Let’s put this all together with a practical comparison. We’ll look at two hypothetical projects, Coin A and Coin B, both currently priced at $1.
| Metric | Coin A (Low Inflation Risk) | Coin B (High Inflation Risk) | Analysis |
| Current Price | $1.00 | $1.00 | Identical price makes the supply metrics crucial. |
| Circulating Supply | 800 million | 100 million | Coin B’s circulating supply is much smaller. |
| Max Supply | 1 billion | 10 billion | Coin B has a massive unreleased supply. |
| Market Cap | $800 million ($1 x 800M) | $100 million ($1 x 100M) | On the surface, Coin B looks much smaller and “cheaper.” |
| FDV | $1 billion ($1 x 1B) | $10 billion ($1 x 10B) | This is the red flag. Coin B’s FDV is 100x its market cap. |
| % Circulating | 80% | 1% | Only 1% of Coin B’s total tokens are on the market. |
Investor Takeaway:
A beginner might see Coin B’s $100 million market cap and think it has more room to grow than Coin A. However, the professional analyst sees the enormous $10 billion FDV as a ticking time bomb. As the other 9.9 billion Coin B tokens are released into circulation, it will create immense, sustained selling pressure, making it extremely difficult for the price to appreciate.
Coin A, with 80% of its supply already circulating, has a much lower risk of future dilution. Its market cap is much closer to its FDV, giving investors a more accurate picture of its true valuation. This is why you must always look beyond the market cap.
What Is a Good Circulating Supply for a Cryptocurrency?
This is a common question, but it doesn’t have a simple answer. There is no magic number or percentage that makes a circulating supply “good” or “bad.” The quality of a project’s supply metrics depends entirely on its tokenomics and the context of its goals.
Why There’s No “Perfect” Number (It’s All About Tokenomics)
A “good” circulating supply is one that is transparent, predictable, and aligned with the long-term health of the project. Here’s what to look for instead of a specific number:
- A Clear and Gradual Emission Schedule: A project should clearly document how and when new tokens will enter the circulating supply. A slow, steady release over many years is far healthier than a sudden “cliff” unlock that floods the market.
- A High Circulating-to-Total-Supply Ratio: Generally, a higher percentage of the total supply already in circulation is a positive sign. It indicates less potential for future dilution. A project with 70% or more of its supply circulating is often viewed more favorably than one with only 10%.
- Fair Distribution: Who holds the non-circulating tokens? If the majority is held by the team and VCs with short vesting periods, that’s a red flag. If it’s locked in a community treasury or for long-term staking rewards, it might be more acceptable.
- Alignment with Project Type: A store-of-value asset like Bitcoin benefits from a fixed, scarce supply. A utility token for a decentralized application might need a more flexible or inflationary supply to incentivize network participation.
The key is not the number itself, but the story it tells about the project’s economic design and its respect for investors.
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Open a Free Demo AccountCommon Pitfalls and Limitations of Circulating Supply
While circulating supply is a vital metric, it’s not infallible. Relying on it blindly can be misleading. Here are two critical limitations to keep in mind.
The Problem of Lost or Inaccessible Coins
The circulating supply figures you see on data aggregators can’t account for coins that are permanently lost. For example, it’s estimated that millions of Bitcoin are gone forever due to lost private keys or owners who have passed away.
These lost coins are technically still part of the circulating supply calculation, but since they can never be sold, the true liquid supply is actually smaller. This means the effective scarcity of an asset like Bitcoin is even higher than the official numbers suggest.
Inaccurate Reporting by Projects
The data on sites like CoinMarketCap and CoinGecko is often self-reported by the project teams themselves. While these platforms have verification processes, there have been instances of projects misreporting their circulating supply to manipulate their market cap ranking.
Always be skeptical. If a project’s numbers seem off or if there’s a large, unexplained discrepancy between its circulating and total supply, it’s a major red flag. Cross-reference data from multiple sources and look for official documentation or a third-party audit of the project’s tokenomics.
Frequently Asked Questions (FAQ)
Circulating supply refers to the number of coins or tokens available and actively trading in the market, excluding locked, reserved, or burned tokens.
Because looking only at price without considering circulating supply can cause major mistakes. It helps calculate market cap, growth potential, and inflation risk.
Market cap is calculated by multiplying circulating supply by the current price. Low circulating supply with high total supply can signal future dilution.
FDV estimates a project's market cap if all tokens were released at the current price, including locked tokens.
Vesting schedules show when locked tokens held by teams or early investors will be released. This helps investors predict future supply increases.
They focus only on a low price per coin and ignore circulating supply, leading to wrong assumptions about growth potential.
It helps investors evaluate true valuation, identify inflation risks, and make smarter investment decisions.
