What Is Circulating Supply?
The circulating supply of a cryptocurrency’s coin or token currently on the market can grow or shrink in a number of ways — from mining to lockups to burns. Projects that allow mining for coins (e.g., Bitcoin) initially have few coins on the market. As time passes and mining continues, more supply is created and circulated.
Circulating supply can also be dictated by token locks. In this case, part of the token supply has been given to the team or stakeholders, but under the condition that it can only be unlocked and sold on the market at a future time.
Finally, token burns — known as ‘burning’ — destroy a part of the supply. This is a common practise that projects use in order to prevent inflation: A certain amount of coins or tokens are sent to a burn address, which destroys them, taking them out of circulation and decreasing the total supply.
Why Is Circulating Supply Important?
Circulating supply is an important metric to analyse when considering a cryptocurrency project. However, it is not always precise; it is an estimation of what platforms believe the circulating supply to be, as it can increase or decrease.
For example, Bitcoin has a stipulated circulating supply that doesn’t account for the nearly four million bitcoins that have been lost due to forgotten keys or corrupted storage that can no longer be accessed. In other words, if an individual were to buy 10 bitcoins and then lose them, they would be accounted for in the official circulating supply count, even though they don’t appear in the market.