What Is Market Cap in Crypto?

Key Market Cap (MC) Takeaways

• The Market Cap of a token gives you a better understanding of it's actual size and therefore it's potential upside (or downside).
• Comparing Circulating Market Cap and Fully Diluted Value will highlight potential inflation and sell pressure, driving prices down.

Market capitalization (MC), or market cap for short, is a simple way to measure the total value of any crypto asset.

In the crypto industry it equals the current price of a token multiplied by the total number of tokens in circulation. This gives us a clear picture of a cryptocurrency's size in the market, a total dollar value

Bitcoin dominates the crypto market with over 50% of the total market share.

We use market cap to compare different cryptocurrencies and track their growth over time. You can use it to spot trends and make informed investment decisions about which crypto assets to buy or sell.

How do you calculate the market cap of a cryptocurrency

The formula is simple:

Market Cap = (Token Price) X (Tokens in Circulation)

The first part of the equation, Token Price, is very straightforward. It’s what it would cost you if you wanted to buy one coin or token on the open market.

You can find the price or dollar value of most tokens by visiting a website like Coingecko.com or inside a portfolio tracker like CoinStats. Exchanges, Like OKX, where you can buy and sell digital currencies will usually list the market cap along with other metrics.

The second part of the equation, Tokens in Circulation, can be a little trickier to find.

There are several mechanisms that affect the number of coins or tokens in circulation.

For example:

• Token releases or unlocks (increases tokens in circulation)
• Token burns (decreases tokens in circulation)
• Mining or Minting (increases tokens in circulation)

The MC of a token will go up if there’s an increase in price OR if there is an increase in the number of tokens in circulation.

Said another way, if the price of Bitcoin goes up but the circulating supply stays the same, then the market cap goes up.

Inversely, MC goes down if the price of a token drops or if tokens are removed from circulation.

Market Cap Categories

Cryptocurrency typically fall into three categories or asset classes. These should sound familiar if you've ever invested in stocks.

• Large-cap: Over $10 billion
• Mid-cap: $1-10 billion
• Small-cap: Under $1 billion

Large-Cap Cryptocurrencies

Large-cap cryptocurrencies have market capitalizations above $10 billion. Large market cap coins like Bitcoin, Ethereum, XRP, BNB, and Solana are all large-cap tokens.

These coins offer the most stability in the crypto market and tend to be lower risk investments. Their high trading volumes and widespread adoption make them less volatile than small-cap alternatives.

Mid-Cap Cryptocurrencies

Mid-cap cryptocurrencies have market caps between $1 billion and $10 billion. Tokens like Hyperliquid, Polkadot, Uniswap, and Aave are popular mid-cap.

Small-Cap Cryptocurrencies

Small-cap cryptocurrencies have market caps under $1 billion. These projects may be newer or less established in the market often making them more volatile assets. Investors that sell large allocations of a small-cap token can cause big swings in price and MC.

A few of the more established small-cap tokens include Maker, Pyth, dYdX, and Akash.

And when you add up the total market cap of every token or coin in existence you get the total cryptocurrency market cap.

Circulating Market Cap vs. Fully Diluted Value

Market cap alone doesn't tell the complete story of a cryptocurrency's value and potential. Another metrics to consider is Fully Diluted Value.

Fully diluted value shows us what a cryptocurrency would be worth if all tokens were in circulation right now. This differs from regular market capitalization calculations which only count currently circulating tokens.

For example, a token might have 1 million coins in circulation but plan to release 9 million more over time. The maximum supply is 9 millions but only 1 million are in circulation. In this example, the total supply or fully diluted supply is 10 million tokens.

Why Fully Diluted Value (FDV) Maters to Investors

If the fully diluted value of a token is significantly higher than the market cap that mens there's lots of potential for inflation, which dilutes the value of the tokens you hold.

Why You Should Care About the Market Cap of Your Tokens

The lesson I want you to walk away with is to NOT value a project or token solely on it's PRICE.

Let's look at an example of two tokens:

• Maker's ($MKR) price is ~$1,000
• Solana's ($SOL) price is ~$178

If you only look at the token price it appears $MKR bigger or more established.

But if we look at the MC it tells a different story...

• Maker's MC is $871 Million
• Solana's MC is $86 Billion

Solana's market cap is 100x bigger than Maker's even though the token price is lower. That's because Solana has way more tokens in circulation.

This maters because tokens with smaller market caps can be more volatile but have more upside compared to large cap coins.

Market Cap vs. Market Dominance

Market dominance measures what percentage of the total crypto market value a single cryptocurrency holds.

Bitcoin's dominance typically ranges between 40-60% of total crypto value.

Changes in market dominance can signal important market shifts. When Bitcoin's dominance falls, it often means investors are moving money into smaller cryptocurrencies.

We track dominance to understand market trends and investor sentiment. Rising dominance in a specific coin can indicate growing confidence in that project.

Understanding market capitalization is an important data point for evaluating cryptocurrencies. It’s not a metric you can rely on solely but it can give you a fast snapshot of the size of a token.

Which tokens are best for you to buy will depend on your financial situation, the total dollars you have to invest and finding a good balance of longer term growth potential and risk.

Frequently Asked Questions