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What Is Crypto Market Cap (Capitalization)?

Jul 25, 2022

What Is Market Cap?

Market capitalization of a coin (often shortened to “market cap” in the crypto community) is its price multiplied by the total amount of said coins out there (i.e. its circulation supply).

For example, to calculate the market cap of MATIC (which has seen an incredible rally recently), we take its current price ($0.8), multiply it by 8 billion (the circulating supply) and get roughly 6.8 billion as a result. So what, you may ask?

Why Does Market Cap Matter?

When people want to assess whether a coin is successful or not, they usually look at its price. If some crypto is worth a gazillion dollars, it’s bound to be a good investment, right?

To see why that is wrong, let’s take a look at top cryptocurrencies by price on CoinMarketCap.

How many of these have you heard of? How many do you hear about often? Chances are you see them for the first time. And if you check the market cap parameter, you’ll know why.

Now let’s take a look at top coins by market cap.

Looks more familiar, right?

A coin with a low price and a high market cap is much more prominent in the industry than a high price and a low market cap, and therefore is a much better investment.

Taking that into account, it is curious to compare data from this year and the previous one to see which currencies rose to the top of the metaphoric crypto mountain and which fell from it.

Where Can I Check The Market Cap Of A Cryptocurrency?

Fortunately, it’s not the 1960s anymore, and to obtain important data, we don’t have to calculate everything ourselves (like Benjamin Graham did).

Most cryptocurrency monitoring websites will tell you the market cap of a coin instantly, so you can just stick to your favorite one and get the data you need automatically. We prefer CoinMarketCap, which is actually the source of 66% of illustrations to this article.

WTF IS FDV?

Once you are familiar with the term “market cap“, it’s high time to learn of its most popular derivative: fully diluted circulation.

If market cap multiplies the price of the coin by the circulation supply, fully diluted circulation replaces the latter with the total supply.

Returning to our MATIC example: to calculate its FDV, we’d have to multiply $0.8 (the price of the coin) by the total supply (10B instead of 8B) and get a result of 8 bil. This metric might be useful when determining the potential of the coin looking into the future.

Total Market Cap Of The Crypto Market

Just like market capitalization of a particular coin can help estimate its current performance, the total market cap of the crypto market may help us determine if it is doing good or not.

The all-time high of this indicator was 2021. In April, the crypto market cap was comparable to the one of Apple‘s stock, and in Q4 it hit $3 trillion.

As you can imagine, these extraordinary numbers couldn’t be kept through the 2022 bear meltdown. On June 13, the market cap was at $1 trillion and saw a dip afterwards, regaining this number only a month later to much joy of the community.

Classifying Cryptocurrencies

The crypto world assesses coins by market cap in the following fashion.

To become a market cap jock, you need to exceed $10B. Only 9 coins made it so far: BTC, ETH, USDT, USDC and BNB (which we’ve showed earlier) and the following:

Solana, the last entry, made it to the list not that long ago, just in August 2021.

Note that 3 of the top 9 coins are stablecoins, which means that despite Vitalik Buterin’s skepticism on the matter the demand for a crypto insusceptible towards volatility is pretty high.

Next we’ve got the medium cap club: $10B-$1B. This includes everything from DOGE and MATIC to SHIB and LTC. Here’s the top and the bottom of the list:

From #50 (in the general rank) all the way down to #6 000, it’s the small cap territory. These are the underdogs, those who may have a huge potential, or alternatively just blow up one day.

When you visit the bottom of the list, you’ll have to scroll endlessly to get past all the zeros, so here are the coins which have at least some market cap to their name.

Identifying a Desirable Crypto

Market cap can be useful when shopping around for a coin, but you have to know what you are looking for.

Low-cap currencies are the best fit for aggressive investors, who wish for huge returns and can handle the inherent risk that comes with them (remember, there’s never one without the other).

A conservative investor (although this term cannot really apply to crypto) will likely pay more attention to high-cap cryptos: being less volatile, they lower your chances both for a sudden surge and an unexpected slump.

Crypto Weighted Market Cap Strategy

The weighted market cap strategy is adopted from the traditional world of finance, but hold your natural skepticism towards it, for it may come out quite useful.

Say you have $100 to invest in crypto, and you only choose two assets (that’s nearly not enough for a well diversified portfolio, but let’s assume that for the sake of the argument). CrapCoin has a market cap of $3B, while CoolCoin is $7B (neat round numbers, we know). With the weighted market cap strategy, you put $30 in CrapCoin and $70 in CoolCoin. That way take the advantage of the CoolCoin’s (theoretically) more stable price as a long-term investment and also include a low-cap, high-risk and high-return asset in your portfolio.

What Could Affect the Market Cap?

Do you remember the equation we presented to you in the beginning? Supply x Price. Well there’s your answer – the coin’s supply (circulating or total, as we’ve discussed earlier) and its price are the two factors responsible for market cap’s alterations.

Conclusion

Market cap alone will not help you make brilliant investment decisions. But it is a great first step towards investing your time along with your money. Those who spend hours in front of the news feed and the calculator generally come out on top when compared to those who rely solely on hype and gut feelings.

Now you know all there is to know about market cap, and if you plan on implementing this metric when making your financial decisions, welcome to the investment gang!

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