Market capitalization, or market cap, is the total market value of a cryptocurrency's circulating supply. It is the main number used to rank and compare coins. The idea comes from the stock market, where the SEC's investor site defines market capitalization as share price multiplied by the number of shares outstanding. Crypto uses the same math with coins in place of shares.
How Market Cap Is Calculated
Market cap equals the current price multiplied by the circulating supply.
Take a made-up example. A coin trades at $2 and has 500 million coins in circulation. Its market cap is $1 billion. If the price rises to $3 and the supply stays the same, the market cap becomes $1.5 billion.
Market cap is not the amount of money that has been invested in a coin. It is the last traded price applied to every coin in circulation. A small trade at a higher price raises the market cap of the entire supply, even though very little money changed hands.
Three Kinds of Supply
The supply figure matters as much as the price, and there are three versions of it.
- Circulating supply: coins that are available to trade right now. This is the number used for market cap.
- Total supply: all coins that exist today, including locked or reserved coins, minus any that were burned.
- Maximum supply: the most coins that can ever exist. Bitcoin's is 21 million. Some coins, such as ETH, have no maximum.
Circulating supply is an estimate. Data providers decide which wallets count as locked, and they do not always agree. Coins lost forever, such as bitcoin in wallets whose keys are gone, are still counted.
Fully Diluted Valuation
Fully diluted valuation (FDV) is the current price multiplied by the maximum supply, or by the total supply when there is no maximum. It shows what the market cap would be if every coin were already in circulation at today's price.
A large gap between market cap and FDV means most of the supply has not reached the market yet. Those coins usually belong to the team, early investors or a treasury and are released on a vesting schedule. Each release adds supply that can be sold. A token with a $200 million market cap and a $4 billion FDV has 95% of its supply still to come, which is a very different situation from a coin that is almost fully issued.
Market Cap Categories
Traders often sort coins into size tiers. The cutoffs below are a common convention, not an official standard.
- Large cap: above $10 billion. Bitcoin and Ethereum are the clearest examples. These tend to have deeper markets, though they are still volatile compared with stocks.
- Mid cap: $1 billion to $10 billion.
- Small cap: $100 million to $1 billion. Thinner markets and bigger swings.
- Micro cap: below $100 million. The highest risk tier, where a total loss is a realistic outcome.
Why Unit Price Is Misleading
A coin priced at $0.01 is not cheaper than a coin priced at $50,000. Price per coin depends on how many coins the project chose to create.
To see what a price target implies, multiply it by the supply. If a token has 100 billion coins in circulation, a price of $1 would mean a $100 billion market cap. Whether that is realistic is a separate question, but the math shows the scale of the claim.
Limitations of Market Cap
Market cap is useful and easy to misuse.
- It can be inflated. If insiders hold most of a token and only a small float trades, a few purchases can produce a large headline market cap that nobody could actually sell into.
- It says nothing about liquidity. A coin may show a $500 million market cap and have so little trading that a $1 million sale moves the price sharply.
- It does not measure usage. Fees, active addresses and value held in a protocol describe activity. Market cap only describes price.
The SEC's crypto assets page for investors lists further risks, including thin markets and manipulation.
Market Cap vs Trading Volume
Market cap is a snapshot of value. Trading volume is how much changed hands over a period, normally 24 hours.
Dividing volume by market cap gives a rough sense of how actively a coin trades. A coin with a $500 million market cap and $5 million in daily volume is thinly traded for its size. One with the same market cap and $200 million in volume is far easier to enter and exit.
Total Market Cap and Bitcoin Dominance
Adding up the market caps of all coins gives the total crypto market cap. It first passed $1 trillion in January 2021 and reached about $3 trillion in November 2021 before falling sharply in 2022.
Bitcoin dominance is Bitcoin's share of that total. Rising dominance means Bitcoin is gaining value faster than other coins, or losing it more slowly. Falling dominance means the opposite. Both numbers describe what has happened. Neither predicts what comes next.
Common Mistakes
- Comparing coins by unit price instead of market cap.
- Ignoring FDV and upcoming supply releases.
- Treating market cap as money invested, or as money that could be withdrawn.
- Assuming a small market cap means easy growth. Small coins are small for a reason, and most stay that way.
- Trusting a market cap figure for a token with almost no liquidity.
Nothing in this article is financial advice.
Track on CoinMarketGuy
Each coin page, such as Bitcoin or Ethereum, shows live price, market cap, supply and a chart. The homepage shows total market cap and 24-hour volume for the whole market, and the trending page lists the coins people are searching for most.