Learn / Beginner · Markets and Risk

What is market cap?

Market capitalisation, usually shortened to market cap, is a quick way to describe how big a cryptocurrency is. You will see it on almost every price website, and it is one of the first numbers people use to compare coins.

The idea comes from the stock market, where a company's market cap is its share price multiplied by the number of shares. Crypto borrows the same method, using coins instead of shares.

Figures in examples are illustrations to show the method, not live prices.

How it works

The formula is simple:

Market cap = price of one coin × number of coins in circulation

Here is a made-up example. Suppose a coin costs 2 US dollars and 500 million coins are in circulation. Its market cap is 2 × 500 million, which is 1 billion US dollars.

• Price is what one coin currently sells for on markets.
• Circulating supply is how many coins are available and can be traded now. This is the number most sites use.
• Total supply is how many exist now, including some that may be locked and not yet tradable.
• Max supply is the most that will ever exist, if the project has a limit. Bitcoin's is 21 million.

Why price alone can mislead

A common beginner mistake is to think a coin costing 0.0001 dollars is "cheap" and one costing 60,000 dollars is "expensive." The price of one unit means very little by itself, because projects choose how many units to create.

Think of two pizzas of different sizes cut into different numbers of slices. A slice from the big pizza cut into eight might cost more than a slice from a small pizza cut into four, but that tells you nothing about which whole pizza is worth more. Market cap compares the whole pizza.

A coin priced at a fraction of a cent with trillions of units may have a larger market cap than a coin priced at 100 dollars with only a few million units. Price per coin cannot show that. Market cap can.

Size categories

People often group coins by market cap. The cut-off points are informal and vary by source, but the rough idea is:

• Large cap — the biggest, longest-running projects such as Bitcoin and Ethereum. Usually less volatile than smaller coins, though still risky.
• Mid cap — established but smaller projects with moderate size.
• Small cap — young or niche projects. They can move fast in both directions and are easier to manipulate.

Generally, the smaller the market cap, the less money it takes to move the price, and the higher the risk of sudden crashes.

What market cap does not tell you

Market cap is a handy summary, but it is often misread. Here are its limits:

• It is not money inside the coin. A 1 billion dollar market cap does not mean 1 billion dollars was invested. It is just the latest price scaled up. Only the last small trades set the price.
• You cannot cash it all out. If everyone tried to sell at once, the price would collapse well below the headline figure. This is called low liquidity.
• It can be inflated. A project can lock up a large share of its supply and only release a little, which makes the market cap look bigger than what could actually trade. Check the gap between circulating and total supply.
• It says nothing about quality. A large market cap does not prove a project is honest, useful or safe. Some large projects have collapsed.
• It depends on data sources. Different websites may count the supply slightly differently, so figures can differ a little.

Useful companions

Look at market cap alongside other numbers:

• 24-hour trading volume — how much changed hands today. Very low volume compared with market cap is a warning sign.
• Fully diluted valuation (FDV) — price multiplied by max supply. It shows what the market cap would be if every coin were already released.
• Age and activity — how long the project has run and whether people really use it.

Keep in mind

• Market cap describes size, not safety, value or future returns.
• Never judge a coin as cheap or expensive from its price per unit.
• Treat very small market caps with extra caution.
• Credit and check your sources. Compare figures on more than one reputable data site before relying on them.
• Nothing here is financial advice.

Common mistakes beginners make

Comparing coin prices instead of market caps. This is the most common error. Always ask how many coins exist before deciding whether a price is high or low.

Using total supply when most coins are locked. A big gap between circulating and total supply can mean heavy selling pressure later, when locked coins are released.

Believing "it only needs to reach X dollars." Multiply that price by the supply. A coin priced at one dollar with billions of units would need an enormous market cap to get there. Often the target is unrealistic.

Trusting one website's figures. Data sites calculate supply slightly differently. Compare more than one reputable source.

Try it yourself

Pick two coins on a price site. Write down the price and circulating supply of each, then multiply them yourself and check that your answer matches the site's market cap. Next, imagine the cheaper coin reached the price of the expensive one. Multiply again using the cheaper coin's supply. Is the result realistic compared with the whole market? This five-minute exercise shows why price alone is not enough.

Quick questions

Does a higher market cap mean a better coin? No. It only means the coin is larger by this one measure. A large market cap does not prove a project is honest, useful or safe, and some large projects have collapsed.

Where can I find a coin's market cap? Price websites such as CoinGecko list it next to each coin, and our own Markets page shows the figure for the biggest coins. Because sites count supply a little differently, compare more than one source before relying on a number.

How often does market cap change? Constantly. Every time the price moves, the market cap moves with it, and it also changes when new coins are released or removed from supply. A figure you saw this morning may already be out of date.

Key terms from this lesson

• Market cap — price per coin multiplied by circulating supply.
• Circulating supply — coins currently available to trade.
• Max supply — the highest number of coins that can ever exist.
• Liquidity — how easily you can buy or sell without moving the price much.
• Fully diluted valuation — price multiplied by max supply.
• Volume — the amount traded over a set period, often 24 hours.

Sources and credits

The market cap formula is standard in finance and used by data sites such as CoinGecko; explained here in our own words. Always check live figures yourself. Education only, not financial advice.

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