Total Supply

Total Supply is a term most famously associated with cryptocurrency. It refers to the absolute maximum number of coins or tokens that will ever be created for a specific digital asset. This number is typically hard-coded into the protocol's source code and cannot be changed. It includes all coins already in circulation, as well as those that are locked, reserved, or yet to be mined. For example, Bitcoin has a famous total supply of 21 million coins. This concept is distinct from circulating supply, which only counts the coins currently available to the public for trading, and maximum supply, which is a similar concept but may not be as definitively fixed. The idea of a fixed total supply introduces a form of digital scarcity, which is a key driver of value for many cryptocurrencies, mimicking the finite nature of precious metals like gold.

Understanding an asset's total supply is fundamental because it directly relates to the core economic principle of supply and demand. A fixed and known supply is a powerful feature, especially when contrasted with assets whose supply can be increased indefinitely.

When an asset has a capped total supply, it is, by definition, scarce. If demand for that asset increases over time while the supply remains constant (or grows at a slow, predictable rate towards its cap), the price of each unit will naturally face upward pressure. This is the central argument behind the “digital gold” narrative for Bitcoin and other scarce digital assets.

The nature of an asset's supply helps classify it as either inflationary or deflationary, which has huge implications for long-term holders.

• Deflationary: Assets with a fixed total supply, like Bitcoin, are considered deflationary. No new units can be created beyond the cap. Over time, as some coins are inevitably lost (e.g., due to lost private keys) and demand potentially grows, the purchasing power of each remaining coin can theoretically increase.
• Inflationary: In contrast, assets with no supply cap, like most traditional fiat currency (e.g., the US Dollar or the Euro) or certain cryptocurrencies like Ethereum (whose supply policy can change), are inflationary. The supply can be increased, often at the discretion of a central authority like a central bank. This can lead to inflation, eroding the purchasing power of each unit over time.

For a value investing practitioner, predictability is paramount. While cryptocurrencies are often viewed as speculative, the concept of a fixed total supply offers a rare form of certainty in the investment world.

Value investors seek to understand an asset's intrinsic value. A hard-coded total supply provides a transparent and unchangeable variable in the valuation equation. Unlike a company that can issue more stock and dilute the ownership of existing shareholders, a cryptocurrency with a fixed supply offers a guarantee against this specific type of dilution. This makes it easier to model future scenarios, even if the demand side remains highly speculative. An asset's scarcity, however, is not the same as its value. As the legendary investor Warren Buffett has pointed out, assets like Bitcoin are non-productive; they don't have factories or generate cash flow like a business. A value investor must remember that an asset's price is ultimately driven by demand. If demand for a cryptocurrency with a fixed supply were to disappear, its price would fall to zero, regardless of how scarce it is. Scarcity is only valuable if people want the scarce item.

• Stocks: Companies can alter their share supply. They can issue new shares to raise capital (increasing supply) or conduct share buybacks (decreasing supply). A value investor scrutinizes these actions to determine if they create or destroy long-term shareholder value.
• Commodities: The total supply of gold is finite, limited by what exists in the Earth's crust. Its supply increases slowly and predictably through mining, which contributes to its long-standing role as a store of value. The total supply of certain cryptocurrencies is designed to digitally replicate this natural scarcity.