Market capitalization, often referred to as market cap, is a fundamental metric in the cryptocurrency world. It represents the total market value of a cryptocurrency or the company behind it, considering the circulating supply of tokens. Market cap, alongside fully diluted valuation (FDV), is crucial for assessing and comparing the value of different crypto assets. It provides a basic yet effective way to gauge whether a token is undervalued, overvalued, or fairly priced. When all tokens are issued and none are burned (removed from circulation), the market cap equals the FDV.
Table Content:
- Calculating Market Cap in Crypto
- The Importance of Market Cap
- Market Cap Classifications
- Large-Cap Cryptocurrencies
- Mid-Cap Cryptocurrencies
- Small-Cap Cryptocurrencies
- Top Cryptocurrencies by Market Cap
- Frequently Asked Questions about Market Capitalization
- Is a Large Market Cap Good?
- Do NFTs Have a Market Cap?
- What Happens if the Market Cap is Zero?
- Is Market Cap the Same as Equity Value?
Further Reading: What is FDV? The Role of Fully Diluted Valuation in Crypto
Calculating Market Cap in Crypto
Market cap is calculated by multiplying the number of circulating tokens by the current token price. In contrast, FDV is calculated by multiplying the maximum token supply by the current token price.
Let’s use Bitcoin (BTC) as an example. At the time of writing this article, let’s assume the following:
- Bitcoin (BTC) Price: $25,000
- Bitcoin (BTC) Circulating Supply: 19,200,000 BTC
- Bitcoin (BTC) Maximum Supply: 21,000,000 BTC
Using the formulas above:
- Bitcoin (BTC) Market Cap = $25,000 * 19,200,000 = $480,000,000,000
- Bitcoin (BTC) FDV = $25,000 * 21,000,000 = $525,000,000,000
Market Cap and FDV Calculation
The Importance of Market Cap
Market cap helps determine the total market value of a cryptocurrency, as each has a unique token supply and price.
For instance, imagine Token A is priced at $50, while Token B is priced at $1. If Token A has a circulating supply of 1 million and Token B has 1 billion, Token B’s market cap would be significantly higher despite its lower price.
This illustrates why investors shouldn’t solely rely on token price but should consider market cap. It highlights why market cap is an indispensable tool for any crypto investor. FDV offers an alternative perspective, focusing on potential future value by factoring in the maximum token supply. This approach neutralizes the impact of tokenomics, which can influence token prices.
Market Cap Classifications
Cryptocurrencies are broadly categorized into three groups based on their market cap: large-cap, mid-cap, and small-cap. While definitions vary, we’ll use common benchmarks for this analysis.
Large-Cap Cryptocurrencies
Cryptocurrencies with a market cap exceeding $1 billion are classified as large-cap. These established projects often exhibit greater price stability and higher liquidity but may offer less growth potential. Bitcoin is a prime example of a large-cap cryptocurrency.
Mid-Cap Cryptocurrencies
Mid-cap cryptocurrencies have a market cap between $100 million and $1 billion. Many investors favor these assets for their potential to generate substantial returns with moderate risk. Their liquidity is generally acceptable for most investors.
Small-Cap Cryptocurrencies
Small-cap or low-cap cryptocurrencies have a market cap below $100 million. These are typically newer projects in their early stages of development, potentially offering exponential returns but carrying significantly higher risks. Prices can be volatile, and liquidity is often low, making trading challenging. Many scam projects fall into this category, demanding thorough due diligence before investment.
Top Cryptocurrencies by Market Cap
The top cryptocurrencies by market cap often include Bitcoin (BTC), Ethereum (ETH), and stablecoins like Tether (USDT) and USD Coin (USDC). Resources like Coingecko and CoinMarketcap provide real-time data on these rankings.
Further Reading: A Guide to Using CoinMarketCap
Top 10 Cryptocurrencies by Market Cap
Frequently Asked Questions about Market Capitalization
Is a Large Market Cap Good?
A larger market cap generally indicates a more valuable cryptocurrency. Achieving a large market cap requires demonstrating merit, utility, and credibility. It represents a significant achievement for any crypto project.
Do NFTs Have a Market Cap?
Yes, the market cap of an NFT collection can be calculated by multiplying the floor price of the collection by the total number of NFTs in that collection.
What Happens if the Market Cap is Zero?
A zero market cap suggests three possibilities: the token price is zero (project defunct or worthless), the project transitioned to a new token rendering the old one irrelevant, or the project hasn’t issued any tokens.
Is Market Cap the Same as Equity Value?
Equity value in the stock market is analogous to token price in the crypto market. Market cap, while related to token price, is distinct from equity value. It represents the total market value of all outstanding shares, not just the price of a single share.
