Market capitalization is the most common way to size a cryptocurrency. For a coin, it is the price multiplied by the number of coins in circulation. Bitcoin's market cap, for example, is its price times the number of bitcoins that have been mined and are available to trade. Market cap is what price sites use to rank coins, and it is the figure most investors look at first.
It is a useful measure, but it depends on two inputs, the price and the supply, and both can mislead. This guide explains how the calculation works, why rank matters, and where the figure can give a false sense of size.
The formula
Market cap = price × circulating supply
The price is the latest trade across the exchanges that a price site tracks. The circulating supply is the number of coins available to trade. For bitcoin the supply is known fairly precisely, because it is set by the protocol and the number mined so far is published. For many other coins, circulating supply is an estimate, and it can change when tokens are released, unlocked or burned.
A coin with a price of 2 and 500 million coins in circulation has a market cap of 1 billion. A coin with a price of 200 and 5 million coins has the same market cap. Price alone does not tell you how large a coin is.
What rank means
Price sites rank coins by market cap, with the largest at the top. The rank is a convenient guide to which coins are the big names, and it is used to decide which coins are included in indexes and to group them by size.
Rank can change quickly. A coin can rise or fall several places in a single week, and a small movement in price can change its position among the top ten. Treat the rank as a snapshot, and check the date of any ranking you use.
Rank tells you about relative size in the market at that moment. It does not tell you about the strength of the technology, the number of users or the chance of the coin surviving. Some coins with high ranks have lost most of their value, and some low-ranked coins have a larger real use than their size suggests.
A worked example
Suppose three coins have these figures.
| Coin | Price | Circulating supply | Market cap |
|---|---|---|---|
| Coin A | 2.00 | 500 million | 1 billion |
| Coin B | 200.00 | 5 million | 1 billion |
| Coin C | 0.02 | 60 billion | 1.2 billion |
The three coins have almost the same market cap, but their prices range from 0.02 to 200. A price rise of 10 percent in Coin A adds 100 million to its market cap, the same as a 10 percent rise in Coin B. The price is not the measure of size. The supply is part of it.
Now suppose Coin C releases 20 billion new tokens to its team over the next year. Its circulating supply rises, and its market cap rises too, even if the price does not move. The headline figure grows, but the value per coin may fall. This is why the supply schedule matters.
Circulating supply versus total supply
Circulating supply counts the coins that are available to trade. Total supply counts all the coins that exist, including those locked, reserved or not yet released. Maximum supply is the most the protocol will ever create, if the coin has a cap.
Price sites use different definitions, and the figures can differ a lot for a coin with large unreleased holdings. The guide on circulating and total supply explains the differences and how to check them.
Fully diluted valuation
Some sites show a fully diluted valuation, which multiplies the price by the total or maximum supply, including tokens that are not yet released. For a coin with a large unreleased supply, this figure can be much bigger than the market cap. It shows what the market value would be if all the tokens were in circulation at today's price.
Neither figure is wrong, but they answer different questions. Market cap shows the value of what is trading. Fully diluted valuation shows the value of everything that could trade, and the gap between them is a measure of future supply. A large gap can be a warning that new tokens will add selling pressure as they are released.
Market cap and liquidity
Market cap is not the same as how easily you can trade a coin. A coin can have a large market cap and thin trading on any one exchange, or a small market cap and deep trading. Check the trading volume and the spread on the exchanges you use, because the volume tells you how much can change hands without moving the price.
The guide on crypto volume explains how to judge whether a volume figure reflects real demand.
Common mistakes
Ranking by price. A coin with a higher price is not necessarily bigger. Always look at the market cap.
Assuming supply is fixed. Many coins release tokens over time, and the circulating supply changes.
Trusting one site. Providers differ in their supply figures and their price sources, so check more than one when a decision depends on size.
Ignoring the date. Market cap changes with price and supply, so the date matters.
Using market cap as a measure of quality. A large market cap means the coin is widely held and traded. It does not mean the project works or that the price is fair.
What to check
- The price and the date of the figure.
- The circulating supply, and whether it is an estimate.
- The total and maximum supply, and any release schedule.
- The fully diluted valuation, and the gap from the market cap.
- The trading volume and the spread, to judge liquidity.
- The coin's rank, as context rather than a verdict.
Why coin size changes over time
The market caps of coins change constantly, and the ranking changes with them. A coin can move from the top ten to outside the top fifty in a year, not because its code stopped working, but because its price fell relative to others or because new tokens increased its supply. Some coins are overtaken by newer projects with faster growth in users or activity.
For this reason, a ranking is most useful for a snapshot and least useful as a long-term judgement. If you use market cap to compare coins over several years, record the figures on the same date each time, and note any change in supply or method. The sizes you see today reflect today's price and supply, and they may not look the same a year from now.
Key takeaways
Crypto market cap is the price times the coins in circulation. It is the standard measure of size and the basis of most rankings, but it depends on a supply figure that is sometimes estimated and can change as tokens are released. Compare market cap with fully diluted valuation to see future supply, check the trading volume to judge liquidity, and treat rank as a snapshot. A large market cap is not proof of a good project, and a small one is not proof of a weak one.
This guide is for general information, not financial advice. See the disclaimer.