Learn about the "Four Great Kings" of Cryptocurrency Quantitative Analysis in one article: Price, Volume, Supply, and Market Cap

For an emerging industry like cryptocurrency, the booming industry cannot be separated from a set of scientific research and analysis methods. This article will briefly introduce several indicators that are widely used in the industry, namely the four major quantitative analysis indicators, including price, trading volume, supply and market value. It should be noted that the above indicators are mainly based on the Messari platform.

Price

The price is quite intuitive, so I won’t go into details here.

Marketcap

The market cap of a given cryptoasset is calculated by multiplying its price by its supply. However, the supply characteristics of cryptoassets differ from all other asset classes. New issuance is determined by a combination of algorithmic issuance, discretion of asset creators, stakeholder voting, and other mechanisms.

Liquid Marketcap

Liquid market cap is calculated by multiplying the current price of an asset by its liquid supply. Liquid supply refers to tokens that exist on-chain and are not bound by any contract (procedural or legal).

Reported Marketcap

Reported market cap is calculated by multiplying an asset’s current price in USD by its reported supply. Reported supply is the supply commonly reported in the industry.

Y+10 Market Cap

Y+10 market cap is the total market cap accounting for known issuance over the next 10 years. It is calculated by multiplying the current price of the asset by the total supply in the next 10 years.

Y2050 Market Value

The fully diluted (Y2050) market cap is the market cap of an asset's known issuance until the year 2050. It is calculated by multiplying the asset's current price by its total supply in 2050.

Volume

As we all know, many exchanges conduct wash trading in order to artificially increase trading volume, hoping to attract users with inflated trading volume. Therefore, we must consider the authenticity of trading volume.

Real trading volume

The “Real Volume” metric excludes the volume of some exchanges that do not show consistent patterns and patterns in a well-functioning trading market. The 10 exchanges that Bitwise Investments identified as meeting this criterion are: Binance, Kraken, Bitfinex, Coinbase, Bitstamp, BitFlyer, Gemini, itBit, Bittrex, and Poloniex. This is the origin of the Real 10 Volume.

According to Messari data, exchanges with real trading volumes also include Binance.US, Sushiswap, and Uniswap. Bithumb, CoinOne, Huobi, OKEx, and Upbit only count half of their trading volumes.

Volume Turnover

Turnover rate is a measure of the market trading volume of an asset. It is calculated by dividing the Real 10 Volume of a crypto asset by its liquid market capitalization. High daily volume and low liquid market capitalization will result in a relatively high turnover rate, while low daily volume and high liquid market capitalization will produce a relatively low turnover rate. This ratio can be used to understand price momentum.

Supply

Liquid Supply

Liquid Supply is the number of units that currently exist on-chain and are not known to be subject to any contractual constraints. Note that constraints on liquidity can be either on-chain smart contracts or traditional legal contracts. Therefore, this number takes into account both on-chain locked-in units and founder/investor vesting and lock-up periods.

Reporting supply

Reported supply is the supply commonly reported in the industry.

Current Inflation

The current inflation rate is calculated by dividing the projected 12-month liquid supply growth by today's liquid supply. This is a good estimate of the dilution that investors may experience due to inflation over the next year. Note that different assets also have to consider various scenarios such as halvings, vesting expirations, etc.

Stock to Flow

Stock to Flow is calculated by dividing today’s circulating supply by the projected 12-month increase in circulating supply. This is essentially the inverse of the current inflation rate.

Y+10 Supply

Y+10 supply refers to the liquidity supply that will be available 10 years from today.

% Y+10 Supply Issued

% Y+10 Supply Issued is the percentage of Y+10 supply that is currently in the market.

Y2050 Supply

Y2050 Supply is the current liquid supply that the asset is expected to have in January 2050.

% Y2050 Supply Issued

% Y2050 Issued Supply is the percentage of Y2050 supply that is currently liquid supply in the market. This number gives investors an at-a-glance view of the deterministic dilution facing a particular asset. For example, if the Issued Supply % is 10%, then an investor holding a position today will experience a tenfold dilution by January 1, 2050. On the other hand, if the Issued Supply % of an asset is 95%, then an investor today can only expect to experience an additional ~5% dilution. Note that sometimes the ultimate supply of an asset can change as the community (or company) behind the asset decides to make significant changes.

Maximum Supply

Max supply is the maximum supply defined by the protocol for a cryptoasset with a capped supply.

Supply may be a more complex indicator among the "Four Great Kings". Based on Messari, we provide more terms below to help everyone better understand the supply of tokens.

Token Generation Event (TGE): Many assets are developed and released by a central organization or individual, who may create some or all of the tokens before the network goes live. Tokens are usually distributed to different stakeholders by the project manager. In the early years, this was called "pre-mining", but now it has become a standard issuance practice for many projects, namely "token generation". This part of the supply is usually defined and allocated when the token is created.

Programmatic Issuance: Tokens that are issued according to a schedule that is hardcoded in code, without human intervention. This is usually achieved by providing block rewards through a proof-of-work (PoW) or proof-of-stake (PoS) algorithm. Note that tokens can also be "burned" (destroyed) programmatically.

On-Chain Supply: On-Chain Supply refers to the tokens currently visible on the chain, without considering future changes. We can perform blockchain analysis to confirm the existence of these tokens in the current blockchain.

Restricted Supply: Tokens can be restricted or constrained in various ways and cannot circulate freely, although they may be visible on the chain. This may include tokens locked by on-chain smart contracts or tokens locked by traditional legal contracts.

Founders Supply: This portion of tokens can be allocated to founders or stored in a project "treasury" and sold (or repurchased) over a long period of time. Founders Supply can be divided into two categories: liquid (unrestricted) and restricted.

Monetary Models: Crypto assets use many different types of monetary models, including fixed supply, perpetually inflated but declining supply, constant inflation, deflation, variable or even unpredictable dynamic supply. Because of the diversity of monetary models, we need a unique way to think about and define supply for this asset class.

In addition, investors often need to understand the impact of changes in the supply of an asset on their investment. Investors' needs may vary greatly depending on their expected investment time frame, and the impact of changes in the supply of a given asset may vary greatly. Messari provides a supply stratification (Supply Tranches) that takes into account the different nature of crypto asset supply management and refines asset supply into a framework that can be applied to the entire industry.

Supply Tranches (largest to smallest)

Maximum Supply: Since there are many forms of crypto asset monetary models, the maximum supply can be fixed (such as BTC), infinite, gradually decreasing, and can change with monetary policy adjustments. This makes the maximum supply an interesting number, and we need more standards and indicators to establish a useful long-term supply awareness from an investment perspective.

Diluted Supply: Diluted Supply is a metric that most long-term investors find useful. It defines how much circulating supply tokens are expected to exist on-chain at some point in the future (i.e. completely unrestricted). Messari currently defaults to using Y2050 as a conservative benchmark. In the future, as Messari collects clearer disclosure data from token creators, it may default to using the Y+10 metric (projected 10-year liquid supply). Comparing this metric across different crypto assets can provide a good understanding of relative supply changes.

Outstanding Supply: This is simply the supply that is identifiable on-chain at a given point in time. For many assets, especially those with a fixed supply at token generation, this metric is the same as the max supply and diluted supply.

Liquid Supply: We define the liquid supply of an asset as the number of tokens that currently exist on the chain and are not restricted by any contract. This has been mentioned repeatedly before.

Circulating Supply: In reality, a project or foundation may hold some unrestricted tokens, but they have no intention of selling them. Therefore, Liquid Supply minus this portion is the Circulating Supply. In the calculation, the Circulating Supply does not include the known project fund holdings (which may be the bulk). Please note that investors must carefully consider the difference between Liquid Supply and Circulating Supply when evaluating assets.

Variable Timeframe Tranches

Active Supply: It is often helpful to understand how many tokens have been transferred on-chain in a given time frame. Investors can measure actual usage on-chain and make educated guesses about token loss to correct other supply data.

Liquid+N Supply: Projects the liquid supply N years from now. We recommend using Y+10 as a standard definition of “diluted supply” that accounts for significant dilution while still being within a reasonable timeframe for long-term investors.