Ask CryptoVantage: What is Circulating Supply vs Max Supply?

What is Circulating Supply?

To put it simply, circulating supply is the amount of that particular crypto asset that is currently in circulation. Much like fiat currencies, cryptocurrencies have a circulating supply. The circulating supply number will not include any of that asset that is yet to be mined or has been burned or destroyed through a particular mechanism of that asset.

For example, Bitcoin currently has a circulating supply of about 18.6 million Bitcoins, meaning that of the total Bitcoin that can exist (max supply), 18.6 million are currently circulating.

It should be noted that in Bitcoin’s case, there are instances of wallet holders losing access to their accounts because they have lost their private keys. This means that the actual circulating supply always going to be lower than the max supply, barring those individuals somehow regaining access.

What About Max Supply?

As you have likely figured out based on the above section on circulating supply, max supply is the maximum amount of a particular crypto asset that can be mined or exist in circulation. The max supply cannot be changed, and once the max supply is reached there is no more of the asset to be distributed through any avenue other than purchase from another holder.

Max supply may also never be reached or was solely the max supply to start with.

To clarify, some assets, like Binance Coin (BNB), have a max supply that was immediately all available in circulation. Part of Binance’s consensus mechanism is to buy back and burn their tokens each quarter as a way to keep demand for the asset up and reduce supply. So, while BNB has a max supply of about 174 million, its circulating supply is currently only about 142 million, and will only continue to go down.

Let’s look at Bitcoin again, as it is an interesting case.

Bitcoin’s max supply of exactly 21 million BTC will likely not be reached until over a century from now. This is due to Bitcoin’s proof of work consensus mechanism and the halving that occurs to the mining reward for completing the proof of work every 210,000 blocks or about every four years. Each time that milestone is met, the amount that the miners receive for a reward is cut in half, meaning every four years the amount of new Bitcoin that enters circulation will become lower and lower.

Combined with the loss of access by some big account holders, the circulating supply of Bitcoin will always be less than the max.

Do All Assets Have a Max Supply?

No, not all assets have a max supply. This can be for a variety of reasons, some of which we will look at now.

Stablecoins, such as Tether (USDT), have a circulating supply but no max supply. This is because Tether is simply pegged to the United States Dollar at a one to one ratio, meaning that it can be created by people endlessly as long as they have the funds to convert into USDT.

Ethereum (ETH), the number two ranked crypto asset by market cap, also has no max supply. This is because they are not sure of the demands the network will require if and when fully functioning, as ETH is burned as part of most network functions. Instead, the issuance of ETH is lowered in proportion to the current value of the asset, meaning that the cheaper the price of ETH the greater the issuance, and vice versa.

Which is More Important, Max or Circulating Supply?

This is a situational question and depends on the asset.

For Bitcoin, as a store of value, the fact that there is a max supply helps create its scarcity, and therefore it is most important for it. The additional likelihood that the circulating supply is lower than it should be furthers its upward price movement.

For Ethereum, the fact that there is no max supply helps developers and miners until the asset reaches a point of extremely limited issuance when its price has gone up enough. Then the amount they receive will still be equivalently worth the same as when issuance was higher.

Finally, for Tether, there is no need for a max supply because it is supposedly a representation of the number of USDs held by the company.