4 | Token supply and market cap

Many novice cryptocurrency investors will look at a token with a low price and think it is a good investment opportunity (read: bet) because there is a lot of room for the price to grow. Well, seasoned investors know that it is essential to look at the token supply and how fast and by how much the supply will grow or shrink. To do this, investors will look at the circulating supply, total supply, and maximum supply of the token and the emissions schedule.

The circulating supply (referred to as initial circulating supply at TGE) is the amount of tokens currently trading on the market. This is calculated by taking the total supply and subtracting any tokens that are still vesting or are locked. The total supply refers to the number of tokens that have already been mined or minted on the blockchain. Total supply includes all locked and vesting tokens. The max supply is the most tokens that can ever be produced and includes tokens that are not yet mined or minted on the blockchain.

Knowing the circulating and total supply, investors can calculate the circulating market cap (initial market cap pre-TGE) which indicates the value of tokens currently trading. To potential investors,  a small circulating market cap could indicate a token that is undervalued or one that has room to grow price-wise. The circulating market cap can be considered alongside the fully-diluted market cap which measures the market value of the total supply of the token. If a token has a high fully-diluted market cap compared to its circulating cap, it would be fair for investors to wonder if the coming token emissions through vesting and unlocks will cause the price to decrease.

The emissions schedule, if there are token emissions, tell investors the timeframe over which the entire supply of the token will be released on the market and the pace of its release. Some projects have token burns which permanently reduce the token supply and are meant to counteract the inflationary nature of token emissions or even make the token deflationary. Investors will look for an emission rate that is sustainable for the token and one which makes economic sense for the project and its investors.

Now that we can properly evaluate a token based on its market cap and token supply, we can check the project’s funding and liquidity to help determine the project’s and the token’s long-term viability.

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