Market capitalization, commonly referred to as "market cap," measures the total value of an asset, company, or cryptocurrency. This metric helps investors and traders gauge the relative size of a company or token within the broader market.
The market cap of an asset is calculated by multiplying its current market price by the total circulating supply (or outstanding shares). The formula is:
Market cap = price × circulating supply
For example, in September 2022, Bitcoin's price was approximately $20,000 with 19.1 million BTC in circulation. This resulted in a market cap of $382 billion.
👉 Learn more about Bitcoin's market dominance
Cryptocurrencies are a nascent asset class compared to traditional equities. While Bitcoin's market cap was $382 billion, Apple ($AAPL) stood at $2.59 trillion—highlighting the disparity between crypto and established markets.
Fully Diluted Market Cap
In crypto, analysts also evaluate the fully diluted market cap, which estimates the asset's value if all possible tokens were issued:
Fully diluted market cap = price × max supply
Using Bitcoin’s max supply of 21 million BTC, its fully diluted market cap in September 2022 would have been:
$20,000 × 21 million = $420 billion.
A significant gap between the actual and diluted market caps may indicate overvaluation. For instance, when Bitcoin hit its all-time high of $64,000 (October 2021), its market cap ($1.1 trillion) trailed the diluted cap ($1.35 trillion) by $244 billion—a potential red flag.
Interpreting Market Cap
Market cap helps investors:
- Identify price trends.
- Compare asset valuations.
- Assess risk levels.
Cryptocurrencies are categorized by market cap:
| Category | Range | Examples |
|---|---|---|
| Large-cap | >$10 billion | BTC, ETH, USDT, SOL |
| Mid-cap | $2–$10 billion | DOT, AVAX, LINK, ALGO |
| Small-cap | <$2 billion | APE, SAND, ZEC, BAT |
👉 Discover top-performing mid-cap cryptos
Large-cap assets are generally lower-risk, while small-cap tokens offer higher growth potential but come with increased volatility. Investors can also track the total crypto market cap to gauge industry health or compare it to other sectors.
FAQ
Q: Why is market cap important?
A: It standardizes asset valuations, enabling apples-to-apples comparisons.
Q: Can a cryptocurrency’s market cap change?
A: Yes—due to price fluctuations, token burns, or supply adjustments.
Q: Is a higher market cap always better?
A: Not necessarily. While large-caps are stable, smaller projects may offer innovation.
Q: How does market cap differ from stock to crypto?
A: Equities use outstanding shares; crypto uses circulating supply (or max supply for diluted cap).
Summary
- Market cap = price × circulating supply.
- Diluted cap projects future valuation using max supply.
- Categorize cryptos by market cap (large/mid/small) to assess risk-reward profiles.
- Monitor total market cap for macro industry trends.
For deeper insights into crypto valuations, explore our advanced market analysis guide.