Market capitalisation, commonly called market cap, is the standard metric for measuring the relative size of a cryptocurrency. The formula is simple: Current price per coin x Total circulating supply = Market cap.
If a crypto token is trading at Rs 1,000 and there are 10 million coins in circulation, its market cap is Rs 1,000 crore.
Why market cap matters
Price alone tells you nothing about a cryptocurrency's size. A coin priced at Rs 50,000 with 1 million supply has a smaller market cap than a coin priced at Rs 10 with 100 billion supply. Market cap gives a comparable measure of total value that price alone cannot.
Market cap categories
| Category | Market cap range | Examples | Risk profile |
|---|---|---|---|
| Large cap | Above $10 billion | Bitcoin, Ethereum | Relatively lower volatility |
| Mid cap | $1 billion to $10 billion | Polygon, Avalanche | Moderate risk |
| Small cap | Below $1 billion | Newer projects | Higher risk, higher potential swings |
Large-cap cryptocurrencies tend to be more liquid, more widely available on exchanges and less prone to extreme manipulation. Small-cap tokens can move dramatically on relatively small trading volumes.
Circulating supply vs total supply vs max supply
- Circulating supply: coins currently available and in public hands.
- Total supply: all coins that exist, including locked or reserved tokens.
- Max supply: the hard cap, if any. Bitcoin's max supply is 21 million. Some tokens have no max supply.
Market cap is calculated using circulating supply, not total supply. The fully diluted valuation (FDV) uses max supply and represents what the market cap would be if all possible tokens were in circulation.
Limitations of market cap
- Does not measure liquidity: a token can have a high market cap but very thin trading volume, making it hard to sell large amounts without moving the price.
- Can be inflated: if a large portion of supply is held by insiders, the circulating supply figure may not reflect true market activity.
- Not a valuation method: unlike stocks where market cap relates to earnings and assets, crypto market cap has no underlying cash flow reference.
Using market cap for investment decisions
Market cap is useful for ranking and comparing cryptocurrencies but should not be the sole factor in an investment decision. Consider trading volume, use case, team, technology, and how the token compares to alternatives. A low market cap does not automatically mean the coin is undervalued. It might simply reflect limited adoption.