Two ways to size a token
When people want to compare crypto assets, they often start with a single number that says how big the project is. There are two common versions. Both multiply a price by a number of tokens, but they use different token counts.
- Market cap is the current price multiplied by the circulating supply, meaning the tokens that are currently available to trade.
- Fully diluted valuation (FDV) is the current price multiplied by the maximum supply, meaning every token that will ever exist once all scheduled releases are complete.
The general idea of market capitalization is covered elsewhere. This article focuses on what changes when you swap the circulating count for the maximum one.
A simple worked example
These numbers are for illustration only and do not describe any real token.
Suppose a token has a maximum supply of 1,000,000,000 (one billion) and 100,000,000 (one hundred million) are currently in circulation. The price is $2.
- Market cap = $2 × 100,000,000 = $200,000,000.
- FDV = $2 × 1,000,000,000 = $2,000,000,000.
The FDV is ten times the market cap, because only 10 percent of the supply is circulating. The other 90 percent is locked, reserved or not yet issued.
If the full supply were circulating at the same $2 price, the token would be valued at the FDV. But that would require buyers for the extra 900,000,000 tokens at the same price, and that is the assumption many readers overlook.
What causes the gap
The gap between the two numbers comes from tokens that exist on paper but are not yet freely tradable. Typical reasons are:
- Team and investor allocations that are locked and released gradually. Token supply schedules and unlocks describe how that works.
- Tokens reserved for a treasury, ecosystem grants or future rewards.
- Tokens that will only be issued over many years as staking or mining rewards.
The wider the gap, the more future supply there is relative to what is trading now. When those tokens are released, a chunk of new supply can reach the market, although how much is actually sold is not knowable in advance.
When FDV is useful
FDV is helpful for a rough sense of scale. It answers: if everything were out and the price stayed where it is, how large would this project be? Comparing that figure with established assets can be a useful reality check. A young token with a very small circulating supply and a huge FDV may look cheap on market cap while being priced very high once all tokens are counted.
It is also a reminder that a low price per token means little. A token priced at a few cents can have a larger valuation than one priced at hundreds of dollars, because only the count of tokens multiplied by price matters.
When FDV misleads
Supply that never arrives. Some allocations may be cancelled, burned or never fully released. In those cases FDV overstates the eventual size.
Uncapped tokens. If a token has no maximum supply, FDV is not well defined. Some data sites substitute total supply or a projected figure, which can differ from site to site.
Different definitions. Data providers do not all agree on what counts as circulating, so the same token can show different market caps on different sites. This is why the difference between circulating, total and maximum supply is worth learning first.
Thin markets. Multiplying the last trade price by a large number of tokens assumes you could sell them all at that price. In reality, a large sale would move the price, a point covered under price slippage and market liquidity. Both measures are theoretical valuations and not what anyone could receive by selling.
When market cap misleads
Market cap has its own weaknesses. If only a small share of tokens trades and much of the supply is locked, a small amount of buying can move the price significantly, making the market cap swing. Some tokens also report circulating supply generously, which flatters the figure. And a market cap says nothing about how much money is actually in the project, since the price comes from the last trades and not from the sum of purchases.
A practical way to read both
- Compute or look up both numbers, and check what the data source means by each.
- Look at the ratio of circulating to maximum supply. A low ratio suggests more future supply.
- Check how and when the remaining supply is released.
- Consider demand: is there evidence of organic use, or is the price mostly driven by attention and market hype?
None of this tells you where a price is headed. It only sharpens what the headline figure represents.
Takeaway
Market cap shows the value of tokens trading now, and FDV shows the value if every planned token existed at today’s price. The gap between them is a measure of how much supply is still to come, not a verdict on whether a token is cheap or expensive. Cryptocurrency prices are volatile, valuations are only estimates, and this article is not financial, tax or legal advice.