In this Article I cover the must fundamental terms of crypto that EVERYONE should know if you are buy any type of cryptocurrency.
Video Explanation 📺
If you want a verbal explanation just watch the video below. If you liked the video, subscribe to my YouTube channel and leave a comment, I want to hear about you!
What are Outstanding shares
Let's imagine for a second a company is approved legally to issues 20 million shares so investors can buy it, BUT the company decides to only allow investors to buy up to 10 million shares, this is called outstanding shares.
What is Circulating Supply in Crypto
Circulating Supply refers to the number of coins or tokens that are circulating in the market and in the public's hands. This also includes the assets that are locked (via smart contracts or legal contracts).
What is Market Cap in Crypto
The Market cap is the total value of its outstanding coins, which is the total amount in the investor's hands.
You can calculate the market cap by multiplying the circulating supply times the price of the coin.
Example: if a company has 10 million outstanding coins selling each for $2, the total market cap is 20 million.
What is Fully Diluted Market Cap in Crypto
You can understand it by looking at two things, let's look at Bitcoin:
Max Supply: 21,000,000Total Supply: 18,673,468
We saw that Market cap is the current supply in circulation (in people's hands) * the price, so Fully Diluted Market Cap is the maximum total supply (the total amount of coins that people can have) * the price.
So, it would be the market cap if the max supply was in circulation.
Why Fully Diluted Market Cap is important in Crypto
If the company's outstanding coins were to rise very quickly, let's say by 5%, that could potentially push down the prices of existing coins, unless there is a high demand for such coins.
Where can you see the Fully Diluted Market Cap in Crypto
A website I like and use daily is Coinmarketcap, if you take a look at a coin, you'll see all these terms reflected because it's one of the fundamentals to understand a coin price and whether it's a good investment or not.
Practical example:
1. Max supply of coin
Let's say you have a coin reaching its maximum supply and the company announced they will not be issuing more coins or in the case of Bitcoin, all of it has been mined already. Now that you understand the concept of maximum circulating supply and fully diluted market cap, you can assess whether or not this is a buy. In most cases it is a clear sign that such coin is very valuable due to scarcity.
2. Doge coin
Let's say you are looking to get into the hype and FOMO of Doge coin, but you don't know anything about it. You just buy it, is this a good coin to invest? Probably yes for the future given the advertising by Elon and Mark Cuban, besides it's fun. Now the real question, is this going to be more profitable to your pocket than other coins? The answer is no. If you look at the market cap, you'll see that the price to double, would need to double the market cap as well, which is huge already for a coin that was created as a joke. So, this is an important measure when looking at investment opportunities.
Remember that this is not a financial advice.
With love and respect,
Arturo 👨🏻💻
