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Circulating vs Total Supply

Market demand and supply are two of the most important factors determining a coin’s value, thus, every trader should have a clear understanding of the effects of circulating supply and total supply. Before investing or mining a cryptocurrency, every investor must do his own research, in order to build the proper profile of the project he is putting trust in.

Let’s start with the most important term, circulating supply. The concept refers to the amount of coins or tokens that are currently circulating in the cryptocurrency ecosystem. The number of tokens in the market can increase or decrease over time, depending on its main parameters. One important fact to consider is that circulating supply could be decreased by coin burn events, by permanently eliminating coins in the ecosystem.

The importance of circulating supply relies on its role in the calculation of market capitalization. If investors multiple the current market price of the coin with the number of coins circulating in the market, the market cap will result. For example, if a cryptocurrency has a circulating supply of 20,000,000 coins or tokens with a market price of $2 each, the total market capitalization of the startup will be $40,000,000 USD.

On the other hand, total supply is a term used to describe the number of coins that are both, in circulating or locked in a certain way. It includes the tokens that are circulating in the ecosystem plus the ones that haven’t been released to the market, or simply are lockup by the team or for a certain period. Total Supply does include the whole amount of coins that has been mined or created (excluding the ones burned or destroyed) but that are not available to be used.

Between total supply and circulating supply, traders pay more attention to circulating supply, as the coins that are not available for public trading, are not taken into account in the calculation of the market cap. Also, circulating supply has higher importance as the magnitude of the influx of coins could affect the price of the asset.

All in all, both metrics are hugely important. As a last note, when there is a huge discrepancy between Total Supply and Circulating Supply, traders must do a deeper research to know the reasons of the incoherent proportion.

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