Circulating supply

From binaryoption
Jump to navigation Jump to search
Баннер1
  1. Circulating Supply

Circulating supply is a fundamental concept in the world of cryptocurrencies and, increasingly, traditional finance. Understanding it is crucial for assessing the true value and potential future performance of any asset. This article will provide a comprehensive overview of circulating supply, its calculation, its importance, how it differs from related metrics, and how to use it in your investment analysis. It is aimed at beginners, so complex jargon will be explained clearly.

What is Circulating Supply?

At its core, circulating supply represents the number of tokens or coins of a cryptocurrency that are publicly available for trading and use. It’s *not* the total number of coins that will ever exist (that’s the Total Supply), nor is it the number initially created (the Max Supply). Instead, it’s a snapshot of what’s currently in the hands of the public – meaning held in wallets, on exchanges, or otherwise accessible for transactions.

Think of it like a company's shares. The total number of authorized shares might be very large, but not all are necessarily trading on the stock market. The circulating supply is equivalent to the shares that are actually available for buying and selling.

How is Circulating Supply Calculated?

Calculating circulating supply isn't always straightforward. It requires considering various factors:

  • Total Supply: The total number of coins that have been created minus any coins that have been burned (permanently removed from circulation).
  • Max Supply: The maximum number of coins that will *ever* be created, as defined by the cryptocurrency's protocol. Some cryptocurrencies don’t have a max supply, like Dogecoin.
  • Locked Tokens: These are coins that are currently unavailable for trading. Common reasons for locked tokens include:
   *   Team Allocation: Coins held by the project's founders and developers, often with a vesting schedule (meaning they are released gradually over time).
   *   Investor Allocation: Coins sold to early investors, often subject to lock-up periods.
   *   Staking Rewards: Coins temporarily locked up in staking protocols to earn rewards.  See Staking for more details.
   *   Treasury Holdings: Coins held by the project for future development or operational expenses.
   *   Mining Rewards (Unreleased):  Coins mined but not yet released into circulation.
   *   Burned Tokens: Coins intentionally destroyed, reducing the total and circulating supply.
  • Lost Coins: Coins that are irretrievably lost due to lost private keys or inaccessible wallets. While a precise figure is impossible to determine, lost coins effectively reduce the circulating supply.

The formula for calculating circulating supply is:

Circulating Supply = Total Supply - Locked Tokens - Lost Coins (estimated)

It's important to note that determining the exact circulating supply can be challenging. Projects aren't always transparent about the number of locked tokens, and estimating lost coins is speculative. Reputable cryptocurrency data aggregators like CoinMarketCap, CoinGecko, and Messari attempt to provide accurate figures, but discrepancies can occur. Always cross-reference data from multiple sources.

Why is Circulating Supply Important?

Circulating supply is a critical factor in determining an asset's price. Here's why:

  • Scarcity: A lower circulating supply, *all other things being equal*, tends to increase scarcity, which can drive up the price. Think of rare collectibles – their value is partly based on their limited availability. The principles of Supply and Demand apply directly.
  • Market Capitalization: Circulating supply is used to calculate Market Capitalization (Market Cap), a key metric for assessing the size and value of a cryptocurrency. Market Cap is calculated as:
   Market Cap = Circulating Supply x Current Price

   Market Cap provides a more accurate representation of an asset's value than price alone, as it considers the number of coins available.
  • Price Volatility: Assets with a low circulating supply can be more susceptible to price volatility. A relatively small amount of buying or selling pressure can have a significant impact on the price.
  • Investment Potential: Understanding the circulating supply and its potential future changes (e.g., through vesting schedules or token burns) can help investors assess the long-term investment potential of an asset.
  • Inflationary/Deflationary Pressure: The circulating supply, combined with the emission rate (how new coins are created), determines whether an asset is inflationary or deflationary. Deflationary assets (where the supply decreases over time) can be attractive to investors seeking to preserve value. Understanding Inflation and Deflation is key.

Circulating Supply vs. Other Supply Metrics

It's essential to understand the differences between circulating supply and other related metrics:

  • Total Supply: As mentioned earlier, total supply is the total number of coins that have been created. It doesn't account for locked or lost coins.
  • Max Supply: The maximum number of coins that will ever exist. Not all cryptocurrencies have a max supply.
  • Fully Diluted Valuation (FDV): FDV calculates the market capitalization assuming all coins are in circulation. It's calculated as:
   FDV = Max Supply x Current Price

   FDV can be useful for understanding the potential long-term valuation of an asset, but it can be misleading if the max supply is very large and unlikely to be reached.  FDV is often used in comparison with Price Targets.
  • Realized Value: The value of coins that have been transacted on the blockchain. This metric attempts to filter out coins that are likely lost or held long-term. It's a more conservative valuation metric than market cap. Learn about On-Chain Analysis to understand realized value.

Understanding these different metrics and their relationships is crucial for a comprehensive analysis.

How to Use Circulating Supply in Your Investment Analysis

Here’s how to incorporate circulating supply into your investment decisions:

1. Due Diligence: Before investing in any cryptocurrency, thoroughly research its circulating supply. Check reputable data aggregators and the project's official documentation. 2. Compare with Peers: Compare the circulating supply of the asset with similar cryptocurrencies in the same sector. A significantly lower circulating supply might indicate higher potential upside. 3. Analyze the Schedule: Understand the vesting schedules and lock-up periods for team and investor allocations. Anticipate future increases in circulating supply and their potential impact on the price. Consider using a Calendar to track these events. 4. Consider Tokenomics: Evaluate the overall tokenomics of the project. How are new coins created? Are there mechanisms for burning tokens? A well-designed tokenomics model can create sustainable value. Explore Tokenomics for a deeper understanding. 5. Monitor Market Cap: Track the market capitalization of the asset and compare it to its peers. A rising market cap suggests increasing investor interest. 6. Evaluate FDV: Consider the fully diluted valuation, but be cautious if the max supply is very large. 7. Use with Technical Analysis: Combine circulating supply analysis with Technical Analysis tools like Moving Averages, Relative Strength Index (RSI), MACD, Fibonacci Retracements, and Bollinger Bands to identify potential entry and exit points. 8. Consider Macroeconomic Trends: Factor in broader macroeconomic trends, such as Interest Rates, Inflation Rates, and Geopolitical Events, which can impact all asset classes, including cryptocurrencies. 9. Stay Updated: The circulating supply of a cryptocurrency can change over time. Stay informed about any updates or changes to the project's tokenomics. 10. Implement Risk Management: Always use proper Risk Management techniques, such as setting stop-loss orders and diversifying your portfolio.

Examples

  • **Bitcoin (BTC):** Bitcoin has a max supply of 21 million coins. As of November 2023, the circulating supply is approximately 19.6 million coins. The scarcity created by the limited max supply is a key driver of Bitcoin's value.
  • **Ethereum (ETH):** Ethereum doesn’t have a fixed max supply, but its issuance rate is controlled by the EIP-1559 upgrade, which burns a portion of transaction fees. The circulating supply is currently around 120 million coins. The move to Proof of Stake and the burning mechanism impact the circulating supply.
  • **Ripple (XRP):** XRP has a max supply of 100 billion coins. However, a significant portion of the supply is held by Ripple Labs and is subject to lock-up schedules. The circulating supply is considerably lower than the total supply.
  • **Shiba Inu (SHIB):** SHIB originally had a very large total supply. While a significant portion has been burned, the circulating supply remains relatively high compared to its market cap, making it more volatile. Understanding Burn Mechanisms is important here.

Resources for Further Learning

Start Trading Now

Sign up at IQ Option (Minimum deposit $10) Open an account at Pocket Option (Minimum deposit $5)

Join Our Community

Subscribe to our Telegram channel @strategybin to receive: ✓ Daily trading signals ✓ Exclusive strategy analysis ✓ Market trend alerts ✓ Educational materials for beginners

Баннер
Retrieved from "https://binaryoption.wiki/index.php?title=Circulating_supply&oldid=37648"