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Understanding Circulating Supply in Cryptocurrency

January 11, 2024
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2 min

Circulating supply is a crucial concept in cryptocurrencies, playing a pivotal role in understanding a digital asset's market dynamics and valuation. 

It represents the total number of coins or tokens of a particular cryptocurrency currently available and circulating in the open market. 

This metric is essential for investors, traders, and analysts to assess a cryptocurrency's liquidity and potential market impact.

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What is Circulating Supply?

Circulating supply refers to the quantity of a cryptocurrency actively traded and accessible to the public. 

It excludes:

  • tokens the project team holds
  • is reserved for development,
  • is locked in smart contracts. 

The circulating supply essentially represents the portion of the total supply that is in the hands of the general public, being actively bought and sold on various cryptocurrency exchanges.

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How Do You Calculate Circulating Supply?

Calculating circulating supply involves deducting the tokens not actively traded or available in the open market. The formula for calculating circulating supply is relatively straightforward:

Circulating Supply = Total Supply−Tokens Held by the Project Team−Reserved Tokens−Locked Tokens

For a cryptocurrency with a transparent and well-documented token distribution, the circulating supply can be easily determined by subtracting the locked, reserved, and team-held tokens from the total supply.

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Importance of Circulating Supply

Understanding the circulating supply is essential for assessing a cryptocurrency's market capitalization, a crucial metric for evaluating its overall value and market position. 

Market cap is calculated by multiplying the circulating supply by the current market price of each unit. 

A lower circulating supply often leads to higher scarcity, potentially influencing the perceived value of a cryptocurrency.

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Circulating Supply - The Blockchain Metric 

Circulating supply is a critical metric that provides valuable insights into the current state of a cryptocurrency's market dynamics.

Investors and enthusiasts must consider this factor when evaluating the potential of a digital asset, as it directly impacts market capitalization and overall market sentiment. 

By understanding how to calculate and interpret circulating supply, participants in the cryptocurrency space can make more informed decisions and navigate the market with greater confidence.

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The information provided in this article is for educational and informational purposes only and should not be construed as financial, tax, or legal advice or recommendation. Dealing with virtual currencies involves significant risks, including the potential loss of your investment. We strongly recommend you obtain independent professional advice before making any financial decisions. The products and services offered by Tothemoon may not be suitable for all users and may not be available in certain countries or jurisdictions. The promotional materials do not guarantee any specific outcomes or profits from virtual trading. Past performance is not indicative of future results. It is important to read and understand the risks, which are explained in our Risk Disclosure Statement

Katya V.

Katya is one of Tothemoon's skilled content managers and a writer with a diverse background in content creation, editing, and digital marketing. With experience in several different industries, mostly blockchain and others like deep tech, they have refined their ability to craft compelling narratives and develop SEO strategies.