What Is A Cryptocurrency Market Cap?
A cryptocurrency market cap defines how large a cryptocurrency is by multiplying the current price by the circulating supply.
Market Cap = Current Price x Circulating Supply
Market Cap Of $1,000,000 = $5 Per Token x 200,000 Circulating Tokens
Importance Of A Cryptocurrencies Market Cap
As a metric, the market cap of a specific token can give an insight into how stable a coin may be. The more dominant coins in the market currently have the highest market cap such as Bitcoin and Ethereum. For this, they are usually more stable compared to lower-cap coins, although all cryptocurrencies are bound to see volatility.((Coinbase – What Is Market Cap?))
Although market cap doesn’t always equate to the value of a given coin, rather it is solely based on price.((Anthony Back – Why Market Cap is a Meaningless & Dangerous Valuation Metric in Crypto Markets)) Market cap doesn’t equate to the money invested in a project either, which can prove dangerous for investors as prices can be pumped giving the illusion of liquidity, before being dumped by bad players.
To differentiate between the value and price of a coin its tokenomics should be understood first.
Large-Cap vs Mid-Cap vs Small-Cap
Large-cap is defined as over $10B.
Mid-cap is defined as $1-10B.
Small-cap is defined as less than $1B.