This guide is a complete beginner’s guide to the market capitalization of digital currencies.
We’ll answer questions like:
•What is cryptocurrency market capitalization?
•How do you calculate it?
•Which cryptocurrencies have the highest or lowest market cap?
•Why does it matter?
Let’s start with the basics:
A cryptocurrency, or token, is defined by three things: its code, its community, and its market capitalization.
Of these factors, the last — its market cap — is a result of the first two. And yet, despite being a product of its code and community, a cryptocurrency’s market cap can tell us a lot about its value as an investment.
What is Market Capitalization?
Unless you’re a crypto expert, you would be forgiven for interpreting the market capitalisation of a cryptocurrency as the total value of all the digital tokens in circulation. That is what it seems to mean to most people, after all. But if that’s true, then surely the market cap of any given digital currency is determined by multiplying the price at which it trades by the circulating supply of coins?
In fact, no. The market capitalisation – or “market cap” for short – of a cryptocurrency is calculated differently to how one might expect. Instead, the market cap of a digital currency can be arrived at by multiplying its price per unit by the total number of units that will ever exist. The difference between this number and that arrived at using the circulating supply is sometimes referred to as “locked liquidity”, or alternatively as “illiquid coins”.
This may seem like a relatively trivial distinction to make, but it isn’t. Because while some cryptocurrencies will have very little locked liquidity, others will have a great deal – and if you don’t understand what it means for a coin to have locked liquidity, then your understanding of its market cap is based on a lie.
Market capitalization is one method used to rank the relative size of a cryptocurrency. It’s calculated by multiplying the Price by the Circulating Supply.
Price is the value of a single coin or token at a given moment in time, usually quoted in US dollars (but also including other fiat currency amounts such as GBP, EUR, CNY etc). It’s not an effective valuation metric on its own — prices can be manipulated easily and are open to much interpretation.
Circulating Supply is the number of coins or tokens that have been released by the project’s team at that point in time and are circulating in public hands.
The resulting market capitalization number is used to compare different cryptocurrencies.
For the last year or so, I’ve been writing about crypto assets. One thing I’ve noticed over and over again is how some people are confused by market cap. For example:
• “When you talk about market cap in crypto, do you mean MCAP?”
• “I heard the price of XRP is going to $50 dollars because of its high market cap. Is that true?”
• “How come [insert altcoin]’s market cap is so high? It seems like a scam to me.”
• (On Telegram) “What does MCAP mean? Is it related to MDA/MDAI/MDC/MDCE/MDCH/MDCI/MDCT/MDE?” etc.…
The confusion is understandable. Do a Google search for “market capitalization cryptocurrencies,” and you end up with a bunch of articles about McAfee Coin (which has the symbol MCAFEE). Do a search for “market cap cryptocurrency,” and you get a bunch pages that list sites that list sites that list coins ranked by market cap. But actually understanding what “
One of the most confusing things about trying to understand crypto is trying to figure out what it’s valued at. You see, while all currencies have a value, crypto is different than your traditional fiat currency (USD, EURO, GBP, etc.)
What makes crypto so much more difficult to understand is that it isn’t a single currency. It’s a collection of thousands of currencies, each with their own values and goals.
The only thing that they have in common is that they are all digital and run on a technology called “blockchain”. And there are a lot of them.
In fact, according to CoinMarketCap there are currently over 1,500 different cryptocurrencies with an estimated market cap of over $500 billion USD.
And this doesn’t even count the many coins that aren’t even listed on CoinMarketCap yet.
Crypto market capitalization or “crypto market cap” for short is a widely used metric that is commonly used to compare the relative size of different cryptocurrencies. On CoinMarketCap, market cap is the default metric by which we rank cryptocurrencies on our frontpage.
Market cap is calculated by multiplying the total number of coins or tokens in existence by the cryptocurrency’s current price. Let’s take Bitcoin as an example. At time of writing, there are ~16,821,925 BTC in existence and the price of each BTC coin is $6,176 USD. If we multiply these two numbers, we get a market cap of $104 billion USD for Bitcoin.
A simple way to think about market cap that it represents a coin’s “price times supply” and can be compared with other cryptoassets to get a sense of relative size. For example:
If coin A has a price of $10 and a supply of 1 million coins then its market cap is $10 million (price * supply = $10 million).
If coin B has a price of $10 but has a supply of 10 million coins then its market cap will be $100 million (price * supply = $100 million).
Coin B is