Market capitalisation, often referred to as market cap, is one of the most widely used metrics for evaluating the size and perceived value of a cryptocurrency project. Whether you're new to digital assets or looking to better understand how coins are valued, knowing how market cap works can help you make more informed trading decisions.
What is Market Capitalisation?
Market capitalisation is calculated by multiplying the current price of a token by its circulating supply.
Formula:
Market Cap = Price × Circulating Supply
For example, if a token is trading at $1 and has 10 million tokens in circulation, its market cap is $10 million.
Why Does Market Cap Matter?
Market cap gives you a snapshot of a project’s relative size and standing within the broader crypto market. It helps traders and investors compare different projects, regardless of their individual token prices.
Large-cap assets tend to be well-established with a broad user base and consistent liquidity.
Mid-cap assets are generally more established than emerging projects, but still have room for growth and volatility.
Small-cap assets often represent early-stage or niche projects with higher upside and higher risk.
Micro-cap assets are usually the newest and least established. They may show rapid price swings and limited adoption but can also be where innovation begins.
Understanding where a project sits on this spectrum can help you assess its potential risk and reward.
Market Cap and Perceived Value
Market cap is often viewed as a measure of a project's perceived value and investor confidence. Higher market caps generally suggest stronger interest and adoption, while smaller market caps can reflect projects that are still developing or gaining traction.
It’s important to remember that market cap is not the same as total value locked, revenue, or real-world usage. However, it does offer insight into how the market currently values a project.
What Market Cap Can Tell You About Risk
Projects with smaller market caps may offer high potential upside, but they can also be more volatile and sensitive to market movements. These fluctuations can be influenced by lower trading volumes, limited adoption, or speculative interest.
Before engaging with lower market cap assets, it’s important to consider your risk tolerance and investment goals. Market cap is just one piece of the puzzle and should be used alongside other metrics like liquidity, token distribution, and project fundamentals.
Final Thoughts
Market capitalisation is a helpful tool for evaluating digital assets, but it shouldn't be viewed in isolation. It’s one of many indicators you can use to understand a project’s size, stage, and market perception. Especially when exploring innovative or early-stage projects, knowing how to interpret market cap can help you navigate opportunities more confidently.
Need more help?
If you have any questions, please don’t hesitate to contact our support team.