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What Is Crypto Diluted Market Cap?
Diluted Market Cap in crypto refers to the total market value of all outstanding tokens or coins in a cryptocurrency after considering the potential issuance of new coins or tokens in the future. It considers the current market capitalization of a cryptocurrency and the potential future supply of coins that could be generated through various mechanisms such as token minting, token burning, token airdrops, or other token generation events (TGE).
How Does Crypto Diluted Market Cap Work
In practical terms, the diluted market cap is calculated by multiplying the current supply of tokens by the current market price of each token and then adding the estimated future supply of tokens to this calculation. For example, if a cryptocurrency has a current supply of 10 million tokens at a market price of $1 per token, its current market capitalization would be $10 million. However, if it is known that the project has plans to issue an additional 5 million tokens in the future, the diluted market cap would be calculated by adding this estimated future supply to the current supply and multiplying the total by the current market price, which would result in a diluted market cap of $15 million.
The importance of diluted market cap in the crypto world lies in the fact that it provides a more accurate picture of the true market value of a cryptocurrency, especially in cases where the future supply of tokens is expected to increase significantly. This can be especially useful for investors considering investing in a particular cryptocurrency, as it provides a more comprehensive view of the potential future value of the investment.
For instance, if two cryptocurrencies have the same current market capitalization but one has a much larger potential future supply of tokens, the diluted market cap would give a clearer picture of the real value of the two cryptocurrencies. This could help investors to make more informed investment decisions, as it would highlight the potential dilution that could occur in the future and its potential impact on the market value of the cryptocurrency.
Diluted Market Cap vs. Market Cap
Market capitalization (market cap) in crypto refers to the total value of all outstanding coins or tokens of a particular cryptocurrency. It is calculated by multiplying the current supply of coins by the current market price of each coin. For example, if a cryptocurrency has a current supply of 10 million coins at a market price of $1 per coin, its market capitalization would be $10 million.
On the other hand, Diluted Market capitalization considers not only the current supply of coins but also the potential future supply of coins. This is because some cryptocurrencies have mechanisms that allow for the creation of new coins, such as token minting, token burning, or other token generation events. The diluted market cap takes these potential future coins into account and provides a more comprehensive view of the true market value of a cryptocurrency.
For example, if a cryptocurrency has a current supply of 10 million coins and a market price of $1 per coin, its market cap would be $10 million. However, if it is known that the project has plans to issue an additional 5 million coins in the future, the diluted market cap would be calculated by adding this estimated future supply to the current supply and multiplying the total by the current market price, which would result in a diluted market cap of $15 million.
In summary, the market cap provides a snapshot of the current value of a cryptocurrency. In contrast, the diluted market cap provides a more comprehensive view of its true market value by considering its potential future supply of coins. As a result, investors and traders may find the diluted market cap a more useful metric as it provides a clearer understanding of the potential future value of their investment and the potential dilution that may occur.
Conclusion
The diluted market cap is an important metric in the cryptocurrency world that helps to provide a more accurate picture of the true market value of a cryptocurrency by considering its current market capitalization and the potential future supply of tokens. It is a valuable tool for investors, providing a clearer understanding of the potential future value of their investment and the potential dilution that may occur.