Cryptocurrency investors have long sought a standardized way of measuring the size and depth of digital asset markets. A new data product from Coin Metrics seeks a way to approximate it.

The cryptocurrency data firm announced its free float supply methodology for digital assets Tuesday to improve and standardize the industry’s liquidity and market capitalization data. 

Cryptocurrency markets have historically lacked consistent, standardized supply data for digital assets, according to the Boston, Mass. company. Borrowing from traditional markets, Coin Metrics’ methodology excludes issued coins and tokens that don’t provide liquidity because they are burned or probably lost, owned by foundations or founding teams, and inactive for over five years. 

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With this data, investors can “consistently” apply a more precise definition of an asset’s supply to multi-asset indices, market capitalizations and valuation methods, according to Coin Metrics. “The current state of supply data can vary significantly depending on what data source is used, making it very difficult for participants and investors to make informed decisions,” said Ben Celermajer, index manager at Coin Metrics.

Bitcoin’s supply demonstrates the significant difference between free float and issued supply data. According to Coin Metrics, bitcoin’s free float is nearly 25% smaller than the commonly cited 18.4 million bitcoins issued to date.

Bitcoin's Current Supply Versus Free Float Supply
Source: Coin Metrics, CoinDesk Research

Forked assets, created by copying the Bitcoin blockchain, demonstrate an even starker difference between free float and issued supply. The Bitcoin Cash market is 36% smaller than its current supply indicates, according to Coin Metrics data. Free float supply of Bitcoin SV, another forked cryptocurrency, is 45% lower than its current supply.

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Coin Metrics’ free float supply data can improve the reliability of a variety of cryptocurrency valuation metrics, according to Yan Liberman, former associate at Deutsche Bank and co-founder of Delphi Digital, a digital asset research group. The popular Network Value to Transaction (NVT) ratio, dubbed a “crypto PE ratio,” and Delphi Digital’s UTXO-adjusted Network Value Transactions Signal (NVTS) are two such relative valuation metrics that could benefit.

Free float data improves the quality of these metrics, Liberman told CoinDesk, by “adjusting supply to a more appropriate level for the calculation.”

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