What is crypto inflation?
In crypto, inflation refers to an increase in the number of coins or tokens in circulation. If the circulating supply rises from 100 million to 105 million tokens over a year, the annual supply inflation rate is 5%.
Supply inflation is not the same as a loss of purchasing power. A 5% increase in supply does not automatically mean a 5% drop in price. Price movements also depend on demand and other market factors.
Why does circulating supply change?
Several mechanisms can increase or decrease circulating supply:
Mining: New coins are issued as rewards for producing blocks, as with Bitcoin.
Staking: Many proof-of-stake networks issue new coins as rewards for helping secure the network.
Token unlocks: Previously locked tokens enter circulation, for example through releases to teams or investors. This can increase circulating supply without creating new tokens.
Token burns: Tokens are permanently destroyed. Circulating supply can decrease if more circulating tokens are burned than added.
Bitcoin example: Bitcoin’s maximum supply is capped at approximately 21 million BTC. Until that limit is reached, mining creates new bitcoin. The amount of new bitcoin issued per block is cut in half roughly every four years through the halving.
How is the inflation rate calculated?
Supply inflation measures the percentage change in circulating supply over a given period. The change over the past 12 months can be calculated as follows:
Annual inflation rate = (current circulating supply − circulating supply a year ago) ÷ circulating supply a year ago × 100
Example: Circulating supply rises from 100 million to 110 million tokens over a year. The annual inflation rate is 10%.
A negative rate means the reported circulating supply has decreased. This may reflect token burns or changes in how a data provider counts or classifies tokens.
Check what an annual rate represents: Historical rates describe past changes, while forecasts estimate future changes. Other figures annualize the current rate of new coin issuance.
What do circulating supply, total supply and max supply mean?
These three figures describe different aspects of a cryptocurrency’s supply:
Circulating supply: The number of coins or tokens considered to be in circulation under the data provider’s methodology. Tokens held for long periods are not automatically excluded.
Total supply: All coins or tokens created so far, minus those permanently destroyed. This can include locked tokens.
Max supply: The intended upper limit on the number of coins or tokens that can ever exist. Not every cryptocurrency has a supply cap.
Even a cryptocurrency with a fixed maximum supply can have high supply inflation if large amounts of tokens are newly issued or released from existing allocations.
What does the inflation rate tell you?
The inflation rate helps you understand how much the circulating supply is changing. If supply grows while your token balance stays the same, your share of the circulating supply decreases. This is called dilution.
Example: You hold 1,000 out of 100,000 circulating tokens, giving you a 1% share. If circulating supply increases to 110,000 tokens, your share falls to around 0.91%. You still own the same number of tokens, but they represent a smaller portion of the circulating supply.
Who receives the additional tokens also matters. Unlocks for teams or investors do not increase your balance. If you receive newly issued tokens as staking rewards, they may partly or fully offset dilution. Always consider high staking yields alongside supply inflation.
Additional supply can put downward pressure on the price if demand does not keep pace. However, high inflation does not automatically mean falling prices, and low or negative inflation does not guarantee gains.
Since 2017, Philipp Duringer has been deeply involved in Bitcoin, crypto assets and digital financial markets. As the founder of Coinbird, he combines years of crypto experience with more than 15 years of technical experience in IT and digital products. His goal is to make crypto easier to understand, more transparent and easier to compare.
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