Market cap – properly market capitalization – is an integral measure of stock markets and is a widely used metric. For stocks, market cap is the total value which is calculated from the price and the count of all outstanding shares (i.e. number of shares outstanding multiplied by current share price).
For cryptocurrencies, market cap is the total value of a given crypto based on the current price of all the circulating supply of tokens (i.e. current price X circulating supply). Cryptocurrency market cap indicates the value of a project and provides insights, like how it compares to its peers.
Market cap is the metric that shows the value of a cryptocurrency and provides insight to investors’ by suggesting critical factors like the amount of capital the team has potential access to as well as the level of risk in the investment.
Cryptocurrencies with smaller marketcaps point to a range of different insights. Some of these include the potential for greater price appreciation as the currency or project could be in an early phase; however smaller market caps often indicate greater risk as these projects are often infrequently used and may even be a red flag – implying a complete flop.
Additionally, smaller market cap cryptocurrencies are more prone to price manipulation and even rug pulls. Our team would recommend only investing in cryptocurrencies with the largest market caps as those are likely more reliable investments.
As always, do your own due diligence before making any investment and please note that our team creates educational content and does not provide any financial advice.
On the topic of cryptocurrencies with large market caps – positive indicators can often be taken away by investors – such as the amount of people using a given project and the overall scope of the network being (likely) large.
Large market cap cryptocurrencies – like Ethereum and Bitcoin – are often regarded as the safest investment because of how established they are, the sheer number of validators on both blockchains, and the amount of people familiar with the value they provide.
Now that we have a basic understanding of what cryptocurrency market cap means, let’s further examine the insight this metric can give investors.
What Does Market Cap Tell You About a Cryptocurrency?
Aside from the overall value of a project, the market cap of a cryptocurrency can indicate the amount of people who believe in a given project, the scope of the network, the amount of capital the team has, and even provide insight into the riskiness of the investment.
All of these factors should be taken into consideration before making an investment and our team highly recommends using proper risk management.
While cryptocurrencies with smaller market caps may provide higher returns, it’s important to consider the potential downsides and likely the higher risk involved. As a general statement, high market caps indicate greater stability and less risk.
Now that we have discussed some of the factors that this widely recognized metric tells us, let’s examine a unique aspect to this metric that only the cryptocurrency market has.
What Is A Fully Diluted Market Cap Of A Cryptocurrency?
A fully diluted market cap of a cryptocurrency indicates the value of a project with the maximum supply of tokens in circulation. This metric is calculated by multiplying the current token price by the total supply (including tokens not in circulation). This metric is a theoretical value.
An underlying assumption that the token price would remain the same were all tokens are currently available to the public – this is why a fully diluted market cap for a cryptocurrency is more of a theoretical value.
As with other digital assets like non-fungible tokens, prices are dictated by supply and demand. Were the founders of a token to unleash all available supply at one time, it is incredibly unlikely that the fully diluted market cap would be realized, given that supply would massively exceed demand.
Please find an illustrative example of market cap and fully diluted market cap with Decentraland ($MANA) token:
In this example the market cap and fully diluted market cap are relatively similar because almost all tokens are in circulation. We should not that this is not always the case and the difference between the two is often vast with many cryptocurrencies.
Projects often have predefined plans for the supply of their project (or token) and this information is typically provided in the projects’ whitepaper or roadmap.
For example, BNB (the Binance token) burns BNB over time as a way to theoretically increase the cryptocurrencies value by decreasing supply. This makes the fully diluted market cap a challenging and ever changing number to calculate.
A metric that is indisputable is the cryptocurrency with the largest market cap which is what we will examine in the following section of our research article.
What Cryptocurrency Has The Largest Market Cap?
The cryptocurrency with the largest market cap is currently Bitcoin. Ethereum has been the cryptocurrency in close second. These two are generally considered to be the most dominant players.
While cryptocurrencies are volatile assets, these two have been at the forefront for an extended period of time.
Many speculators think that Ethereum will eventually surpass Bitcoin in market cap for a number of reasons. The first being Ethereum use of a proof-of-stake consensus algorithm which is far less energy intensive compared to Bitcoins proof-of-work; more on that here.
Additionally, Ethereum is often considered better for the building of decentralized applications (dApps) and was specifically designed for the use of smart contracts – which are an integral aspect to NFTs.
Bitcoin was designed to be a decentralized currency while Ethereum was built more for decentralized finance. With Ethereum, we are seeing more and more people acknowledge the unique value and use cases that dApps provide.
Now that we have fully covered the topic of cryptocurrency market cap, let’s examine NFT market cap.
What Is NFT Market Cap?
NFT market cap is a challenging metric to value but theoretically shows the overall value of the entire NFT market based on the price of all NFTs being traded. Within a specific NFT project, the NFT market cap could theoretically be calculated by multiplying floor price by the number of items in that project.
NFT market cap is even more conceptual than fully diluted market cap for cryptocurrencies because of how fast this number can change. Additionally, demand for NFT projects changes very fast, making this number highly volatile.
Since it is so conceptual, this metric with regards to NFTs is not typically used; this is evident by OpenSea – which is the largest NFT marketplace – choice to not include this metric.
Thank you for taking the time to learn with us.
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