Definition
For cryptocurrencies like Bitcoin, market capitalization (or market cap) is the total value of all coins that have been mined. It is calculated by multiplying the number of coins in circulation by the current market price of a single coin.

Market capitalization (or market cap) is the total dollar value of all outstanding shares of a company’s stock, or in the case of Bitcoin or other cryptocurrencies, the total dollar value of all mined coins. In crypto, market cap is calculated by multiplying the total number of coins mined by the price of a single coin at any given time.

One way to think about market cap is as a rough gauge of an asset’s stability. (It’s important to note that even Bitcoin, the crypto with the largest market cap, remains volatile.) However, much like a bigger ship can safely navigate stormy weather, a cryptocurrency with a higher market cap is more likely to be a more stable investment than one with a smaller market cap. Conversely, digital currencies with smaller market caps are more susceptible to market swings and can produce outsized gains—or losses—as a result.

Side note: You may see references to a "circulating supply" market cap or a "fully diluted supply" market cap. In Bitcoin’s case, these numbers refer to the 19.7 million coins already mined ("circulating supply") or the 21 million that will eventually be mined ("fully diluted supply"). Some observers use the current circulating supply to measure market cap, while others use the fully diluted supply, depending on their methodology.

Why Does Market Cap Matter?
Price is just one way to measure a cryptocurrency’s value. Investors use market cap to tell a more complete story and compare value across cryptocurrencies. As a key statistic, market cap can indicate a cryptocurrency’s growth potential and whether it’s a safe buy compared to others.

For illustration, let’s compare the market caps of two fictional cryptocurrencies:

• If Cryptocurrency A has 400,000 coins in circulation and each is worth $1, its market cap is $400,000.

• If Cryptocurrency B has 100,000 coins in circulation and each is worth $2, its market cap is $200,000.

Even though Cryptocurrency B’s individual coin price is higher than Cryptocurrency A’s, Cryptocurrency A’s overall value is double that of Cryptocurrency B.

That said, it’s also important to note that due to crypto’s volatility, the market caps of many cryptocurrencies can fluctuate dramatically.

What Can You Do With Market Cap?
Market cap allows you to compare the total value of one cryptocurrency to another so you can make more informed investment decisions. Cryptocurrencies are categorized by their market caps into three groups:

As of March 2024, large-cap cryptocurrencies, including Bitcoin and Ethereum, had market caps of $1.3 trillion and $390 billion, respectively. Investors consider them lower-risk investments because they have a track record of growth and typically have high liquidity, meaning they can withstand more people cashing out without significantly impacting the price.

Mid-cap cryptocurrencies have market caps between $1 billion and $10 billion and are generally considered to have more untapped upside potential—but also higher risk.

Small-cap cryptocurrencies have market caps under $1 billion and tend to be the most susceptible to swings in market sentiment.

Market cap is a useful metric for comparing the total value of cryptocurrencies, but when weighing any investment risk, you should also consider market trends, the stability of the cryptocurrency, and your own financial situation.