There are many terms to learn when you start investing in cryptocurrency. Some of those terms refer to technology (crypto wallets, crypto mining, etc.) while others refer to more investment-specific things. You’ll need to have a balance of investment knowledge and technical understanding to make your crypto trades work as well as you need them to.
What follows are some definitions of the more investment-centric terms you’ll come to be familiar with during your journey into crypto.
Explaining Market Cap, Circulating Supply, Total Supply, And Max Supply
The terms listed in the headline above all refer to investment terms, and you may find that some terms used when trading Bitcoin or Ethereum have similar meanings to the terms used in the context of other types of investments and trading.
Let’s examine these terms and what they mean in both contexts (where applicable).
In the investment world and unrelated to crypto, Market Capitalization refers to a given company’s total market value of any stock it has issued. This term is often abbreviated as “market cap” and the formula for arriving at this cap is fairly simple: you take the company’s shares and multiply that number by the current price of a single share of the stock.
When it comes to cryptocurrency, Market Cap is similar except that to run the formula for Bitcoin or any other virtual currency you should multiply the price of the individual coin by the market share of that coin.
Making such calculations requires data from cryptocurrency exchanges and other third parties. This is why some websites that feature virtual currency numbers like market cap with question marks or other indicators that all the data isn’t available to assign a market cap rank or verify the findings for that currency.
How many coins are in the marketplace? How many are currently owned by the public? The answer to these questions is the Circulating Supply–it’s the specific number of coins for a given cryptocurrency that are owned at the time.
This method does not include coins that are held as a stake, coins that are in a reserved status, or otherwise unable to be sold or traded. There is a general notion in certain crypto circles that coins that can’t be traded, bought, or sold should not be allowed to affect market capitalization numbers.
Those looking for data on the actual number of coins in existence rather than those that are free to trade, buy, or sell, will be interested in the Total Supply count.
If you want to know the whole amount of a cryptocurrency in existence, minus coins that have been burned, you want to know the Total Supply. This metric should not be used interchangeably with Circulating Supply as you will get a misleading result–remember that as stated above, Circulating Supply represents the coins that are at that moment available to buy, sell, or trade.
Relying on Total Supply instead of Circulating Supply may mislead you into believing there is more liquidity in a given crypto market than there actually is.
This term describes a “best guess” related to the maximum number of coins that will be mined or minted for the full duration of a specific cryptocurrency’s lifespan. This is an easier number to arrive at for crypto with a fixed amount of coins permitted. For example, Bitcoin is said to have a Max Supply of 21 million coins. This is a fixed number and some sources report that since the start of Bitcoin some 90 percent of the Max Supply has been mined.
What You Should Know About These Terms
Cryptocurrency is by nature unregulated, decentralized, and subject to future regulation by government entities like the Securities and Exchange Commission, the Fed, and other entities.
Just because Bitcoin, Ethereum, and other virtual currencies behave in a similar fashion to more traditional investing that does not mean you have the same fail-safes, consumer protections, or even the ability to contest a trade gone wrong.
Know the terms and conditions before you invest real world money or some of your crypto holdings. When it comes to investing, what you don’t know CAN hurt you. Never over-invest in any financial instrument or opportunity–diversity is the key to successful investing no matter if you are focused on crypto or more traditional options.
Joe Wallace has covered real estate and financial topics, including crypto and NFTs since 1995. His work has appeared on Veteran.com, The Pentagon Channel, ABC and many print and online publications. Joe is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News.