What Is Market Cap?
Market cap is the price of a token multiplied by its circulating supply. It is the standard way to compare the size of crypto assets, and it is the number behind every ranking site. Useful, as long as you know what it hides.
How It Actually Works
If a token trades at $2 and 100 million tokens circulate, the market cap is $200 million. Doubling the price doubles the cap. This is why "which is a better buy, a $0.50 coin or a $50,000 coin" is the wrong question. Price per token is meaningless without supply. A coin priced at a fraction of a cent with a quadrillion tokens can be worth more than one priced in the thousands.
Risks and Common Mistakes
- The cheap-coin illusion. "It only needs to reach $1" is the most expensive sentence in crypto. A fraction-of-a-cent token reaching $1 might imply a market cap larger than entire economies. Do the multiplication.
- Cap is not money in the market. A $200 million cap does not mean $200 million was invested or could be withdrawn. It is the last trade's price applied to every token, including tokens that have never moved. On thin liquidity, cap is mostly imagination.
- Circulating vs. total supply. If most tokens are locked and scheduled to unlock, today's cap flatters the picture. That gap is measured by FDV.
When It Matters
Comparing sizes, sanity-checking a price target, and sizing risk: smaller caps move more violently in both directions. My Portfolio page builds this into allocation, and screeners like the ones in my tool reviews show cap next to every pair.