Price, market cap and supply

Price alone means little

A coin’s price is the price of one unit, and projects create very different numbers of units. A coin at $0.01 is not cheap, and a coin at $500 is not expensive. It depends on how many exist.

Market capitalisation

Market cap = price × circulating supply. Two hypothetical coins:

	Coin A	Coin B
Price	$0.01	$500
Circulating supply	1,000,000,000,000	100,000
Market cap	$10,000,000,000	$50,000,000

Coin A has the lower price and a market cap 200 times larger. For coin A to reach $1, its market cap would have to reach $1 trillion.

Market cap is also not the money invested. It is today’s price applied to every coin in circulation. If little trades, a few large orders can move the price, and the market cap moves with it without any money entering or leaving.

Types of supply

• Circulating supply: coins that exist and can be traded now.
• Total supply: coins created so far, including ones that are locked or held back.
• Max supply: the most that can ever exist, if there is a cap. Bitcoin’s is 21 million. Some coins, including Ether, have no fixed maximum.

Fully diluted valuation

FDV = price × max supply, or total supply if there is no max. It values every coin that will ever exist at today’s price.

A large gap between market cap and FDV means many coins are still to come, for example from team and investor allocations or rewards paid out over time.

Unlocks and new supply

New coins entering circulation increase supply. Token unlocks release coins that were locked for early investors or the team, often on a published schedule. Emissions are new coins paid out as rewards. If supply grows faster than demand, each coin represents a smaller share of the whole. Most projects publish their unlock schedules.

Common mistakes

• “It’s only a cent, it could easily reach a dollar.” Work out the market cap that would require.
• Ignoring FDV. A modest market cap can sit on top of a very large FDV.
• Treating market cap as money in. It is a price multiplied by a count.