What is a Good Circulating Supply in Cryptocurrency?

Circulating supply is one of the most important, yet often misunderstood, metrics in cryptocurrency.

In this article, we’ll explore what makes a circulating supply “good,” and why understanding this metric is essential for making informed investment decisions.

‍

What is a good circulating supply in cryptocurrency?

Circulating supply is the total number of coins or tokens available and being traded in the market. A “good” circulating supply depends on the “type of coin,” “what it’s used for,” and “who it’s meant to serve.”

Bitcoin has a fixed supply of 21 million coins, with 19 million already in circulation, making it scarce and valuable as “digital gold” for long-term investors. Ethereum, with over 120 million coins, powers apps, smart contracts, and DeFi projects, ensuring enough tokens for widespread use. Which is better? It depends—Bitcoin’s low supply suits storing value, while Ethereum’s larger supply supports its utility, making both effective in their own ways.

When does the circulating supply become good in cryptocurrency?

To understand when a circulating supply is considered good, let’s break it down by factors such as purpose, use case, and target audience.

1. When circulating supply matches the coin’s purpose

The circulating supply is “good” when it complements the cryptocurrency’s intended function (i.e., scarcity for store-of-value assets like Bitcoin, abundance for accessible coins like Dogecoin, or balance for utility-focused tokens like Ethereum).

For example, Quant (QNT) has a low circulating supply of approximately 14.6 million tokens. This scarcity can drive demand, potentially increasing its value, making it appealing to investors seeking exclusive assets.

In contrast, Shiba Inu (SHIB) has a high circulating supply, with over 589 trillion tokens. This abundance keeps the price per token low, allowing for widespread ownership and facilitating microtransactions, which can be advantageous for community engagement and everyday use

💡 In each case, the circulating supply becomes “good” because it strengthens the coin’s ability to fulfill its primary role (i.e., exclusivity for Quant and community engagement for Shiba).

2. When circulating supply supports the use case

Cryptocurrencies often have specific use cases, such as powering decentralized applications (dApps), facilitating staking, or enabling governance. The circulating supply must support these functions effectively.

For example, Ethereum’s circulating supply of over 120 million coins ensures enough liquidity for powering smart contracts and DeFi projects. This balance supports its ecosystem without oversaturating the market.

Contrariwise, Binance Coin (BNB) uses token burns to gradually reduce its supply, creating scarcity while maintaining its use as a utility token in the Binance ecosystem. This strategy ensures its value increases over time while still supporting utility.

💡 Hence, a “good” circulating supply aligns with the technical and practical needs of the coin’s ecosystem.

3. When circulating supply resonates with the target audience

Different audiences have varying expectations from cryptocurrencies, and a good circulating supply caters to these expectations (i.e., low supply for institutional investors seeking exclusivity, high supply for retail investors desiring affordability, or balanced supply for developers requiring utility and liquidity).

Yearn.Finance (YFI) is a DeFi platform that helps users maximize returns through yield farming. With only 33,628 tokens in circulation out of a total 36,666, its scarcity drives high value, attracting institutional investors. For example, Three Arrows Capital once invested 5,000 BTC (over $60 million) into YFI, recognizing its potential.

Conversely, XRP (Ripple), with about 56.8 billion tokens in circulation out of a total 100 billion, is built for fast and cheap cross-border payments, making it popular with both everyday users and financial institutions.

💡 The circulating supply becomes “good” when it aligns with the financial goals and accessibility needs of the coin’s target market.

4. When circulating supply balances scarcity and liquidity

A good circulating supply strikes the right balance between scarcity (to drive value) and liquidity (to ensure usability). Too much scarcity can make a coin impractical for everyday use, while excessive liquidity may dilute its value.

To manage its token supply, Polygon implemented the EIP-1559 upgrade in January 2022, introducing a mechanism that burns a portion of the transaction fees paid in MATIC. Since the implementation of EIP-1559, more than 650,000 MATIC tokens have been burned, contributing to the deflationary pressure on the total supply.

Contrariwise, Solana employs an inflationary model to incentivize network participation and maintain liquidity. At its inception, Solana's inflation rate was set at 8% annually, designed to reward validators who secure the network. This rate decreases by 15% each year, aiming for a long-term inflation rate of 1.5%.

💡 A circulating supply is “good” when it maintains this balance, ensuring the coin is both valuable and usable.

5. When circulating supply enables market stability

A good circulating supply helps stabilize a cryptocurrency’s price and market behavior. Stablecoins are a prime example, where circulating supply adjustments directly impact stability.

TerraUSD (UST) dynamically adjusted its supply to maintain a $1 peg. While the system eventually failed due to structural flaws (e.g., its reliance on an algorithmic mechanism tied to the value of LUNA, which became unsustainable during a market downturn, leading to a death spiral of UST devaluation and LUNA oversupply), the adaptive supply mechanism highlighted how supply adjustments can promote stability when properly managed.

💡 Market stability is crucial for cryptocurrencies with practical use cases, such as payments or savings, making an adaptable supply a key feature.

Key characteristics of a “good” circulating supply

So to recap, a circulating supply is considered “good” in crypto when it:

1. Aligns with the coin’s purpose, such as scarcity for a store of value or abundance for everyday transactions.

2. Supports the coin’s use case, whether for utility, governance, or staking.

3. Resonates with the audience’s expectations, offering accessibility or exclusivity as needed.

4. Balances scarcity and liquidity to maintain value while ensuring usability.

5. Promotes market stability, especially for coins requiring predictable pricing.

Final thoughts

Therefore, a “good” circulating supply isn’t just about numbers—it’s about how well it supports the cryptocurrency’s purpose, user needs, and market dynamics. Its only then that the right supply will enhance a crypto’s function and market position.

At MC² Finance, we make understanding these metrics simple. With tools like the Token Authenticity Score and Hype Score, you can easily evaluate supply trends, market behavior, and token performance (and the number of wallets holding that crypto). So whether you’re investing or exploring crypto, **MC² Finance** helps you make smarter, more confident decisions.

‍