Technical Primer — “In-Depth but Easy to Understand: Understanding ‘Market Cap’, ‘Circulating Supply’, and ‘Fully Diluted Valuation’”

Many crypto newcomers, when choosing coins, only look at the unit price. They think a coin priced at a few dollars is cheap, while one priced at several hundred dollars is expensive. This is a very common misconception. In reality, the level of the unit price has no inherent connection to investment value. What you really need to focus on is “market cap” and “circulating supply”, as well as a more advanced concept—“fully diluted valuation (FDV)”.

Market cap = price × circulating supply. For example, Coin A has a price of 1 dollar and a circulating supply of 10 billion coins; its market cap is 10 billion dollars. Coin B has a price of 100 dollars and a circulating supply of 1 billion coins; its market cap is also 10 billion dollars. The “total value” of these two coins is actually the same—only the unit price differs. So when you see a new coin priced at just 0.01 dollars, don’t assume it’s cheap. First check whether its circulating supply is especially large. If the circulating supply is 100 billion, then its market cap is already quite high.

Circulating supply refers to the number of coins that are actually tradable in the current market. When many projects launch, their circulating supply is only a small portion of the total supply (for example, 10%), while most tokens are locked up. At this time, the market cap looks small. But once the locked tokens unlock and the supply increases sharply, the price gets diluted. This is also why some projects skyrocket right after launch but plummet a few months later—because a large number of unlocked tokens are sold as pressure hits the market.

Fully diluted valuation (FDV) = price × total supply (including tokens that are still not unlocked). This indicator reflects the project’s future valuation ceiling more effectively. If FDV is far higher than market cap, it means a large amount of tokens will unlock in the future, creating substantial sell pressure. For example, a project’s market cap is 1 billion, but its FDV is as high as 10 billion—this means there are still 9 billion worth of coins that will be pushed to the market in the future, which is usually not a good sign.

So how can you use these indicators to choose coins? My experience is:

· Prioritize projects ranked in the top 100 by market cap. Liquidity is good, and they tend to be relatively more stable.
· Compare market cap with FDV. If FDV/market cap is less than 2, it indicates unlock pressure is not big and it’s relatively safer; if it’s greater than 5, you should be on alert.
· Observe the circulating supply ratio. If circulating supply is already 70% or more of total supply, then the future dilution impact is relatively small.
· Don’t just look at the price—work out the actual value represented by each coin clearly.

Mastering these basic concepts can help you avoid many obvious “pitfalls.” Investing isn’t like buying a lottery ticket—it’s about making decisions based on data and logic. Hope this primer helps you be more rational when choosing coins. #夏日创作营 #Gate广场
$GT ‌