Whether newbies or experienced, confusion still abounds in the crypto ecosystem. Interestingly, one of the areas where this puzzlement occurs is the part where it comes to defining supply. As someone who has been a crypto user, you must have come across several kinds of supply. 

Most of which included the circulating supply, the maximum supply and the total supply. There is also a high probability that you have not come to terms with understanding the disparities. So, in this article, we will clear the air on what each kind of supply means. But before we go into that discussion, this article will educate you on what supply is in the cryptocurrency market.

Supply In Cryptocurrency: What Does It Mean?

By definition, a crypto supply describes the entire sum of the circulating supply which is temporarily locked up until certain conditions are met. You can also refer to the crypto token supply as the number of coins that is expected to exist throughout the lifespan of the asset. However, you may be wondering, what exactly is the function of the token supply in the crypto market?

Well, the answer to that is not far-fetched. The crypto supply is considered a critical measure to determine demand, and a coin’s market capitalization. In addition to that, the crypto supply can be used as an assessment of an asset worth. This is why the supply also has an impact on the crypto price. You might want to compare this to the supply in the fiat-currency market. But the way it works in crypto differs from the manner of printing money.

Traditionally, money is printed and any central bank can determine how much supply they want at will. But in crypto, it’s a different ball game entirely. This is due to the consensus mechanisms used by cryptocurrencies. For example, Bitcoin relies on the Proof-of-Work (PoW) consensus. The existence of the PoW is one reason you can know the Bitcoin finite supply and others which you can access  on this crypto site . Ethereum, on the other hand uses the Proof-of-Stake (PoS) since it transitioned in September 2022, thanks to the success of the Merge.

That said, let’s move forward to explaining what the circulating supply, maximum supply and total supply are.

The Circulating Supply

The circulating supply seems to be the most popular out of all the supplies listed. So, what this simply refers to is the amount of cryptocurrencies available to be traded within a specific period. So, if we say that the Bitcoin circulating supply in the last 24 hours is 200 million; it simply means that 200 million BTC are being traded.

In other words, you can define the circulating supply as the metric used to assess the economy of a cryptocurrency using its market capitalization. But how is the circulating supply calculated? To get the circulating supply of a cryptocurrency, all you need to do is to multiply the price of the asset by the existing ones on the blockchain. So, in a way the circulating supply is linked to the market cap. In another way, it is also related to the realized capitalization.

There is however, something that you must note. While some cryptocurrencies have a finite supply like Bitcoin, others do not. Examples of cryptocurrencies without a finite supply include Ethereum, Polkadot, Solana and private cryptocurrency Monero. The reason the supply differs is due to the way some of these cryptocurrencies are mined. While some are minted or mined using mining rigs, others take the burning route. What burning does in this regard is that it helps to sustain the value of the crypto and its circulation by destroying some of it.

The Maximum Supply

Simply put, the maximum supply of a cryptocurrency is defined as the number of coins that will ever be mined. However, you should know that many cryptocurrencies do not have maximum supply unlike Bitcoin. In Bitcoin’s case, the maximum supply is 21 million coins. But most tokens developed under the Ethereum blockchain can mint new coins whether they exceed a particular supply level or not. 

There are, however, two kinds of coins we will mention in explaining maximum supply to you. The first are stablecoins while the other is called the “algorithmic backed coins”. So how do these sets of coins relate to the crypto maximum supply?

Stablecoins like Tether [USDT],  are one of the few coins that keep a maximum supply at almost all times. This is because it hardly goes through significant price swings. For example, USDT, and USDC are stablecoins that are pegged to the dollar. So, they do not require inconsistencies in supply to impact its price.

Algorithms -backed coins, on the other hand, are also similar to stablecoins. However, there are slight differences between them. While stablecoins can hardly be depegged from the dollar, the algorithmic-backed coins can. But still they have a maximum supply of coins.

Total Supply

This is the last kind of supply we will discuss in this article. It is also the kind of supply that impacts a crypto price apart from the circulating supply. So, what is the total supply?

To get the total supply of a cryptocurrency, all you need to do is add the undistributed number of coins to the existing circulating supply. Now, let’s give you a scenario that can help you properly understand the total supply.

Let’s imagine that a firm launches new cryptocurrency into the market. At this point, the number of coins sold or distributed would not be the same as the total number available. So, what the total supply does in this instance is that it helps with preserving the unused coins so no one will have access to them. Sometimes, they are completely eliminated from the supply. So, the total supply would be the addition of the locked coins and those that are accessible.

Now, let’s go further by looking at the clear difference between all three kinds of supply. Read on !

In Summary

Finally, it is possible that you think that a crypto supply is the only factor that affects the price. But that is not true. There are several other metrics that determine when a cryptocurrency moves apart from the demand and supply factors. Also, you should remember that the maximum supply has no impact on the price. Only the circulating supply and total supply have a say in this regard. 

Nevertheless, if you intend to use the supply statistics to decide when to buy tokens, please look to consider other factors and metrics. The crypto market is a highly volatile one and the influence of one metric is never enough to ascertain its potential price.