In finance, market capitalization (or “market cap”) is a metric used to measure the size of an asset, company or cryptocurrency relative to the market as a whole.

Anyone can calculate market cap using the market capitalization formula:

Market Cap = Amount of Shares * Share Price

Translating the formula to calculate crypto market cap, the share price is the price of a single unit of the cryptocurrency at any given time, and the amount is its circulating supply.

For example, if we take a snapshot of Bitcoin’s market cap on December 15, 2020 (the date it breached its all-time high), the price of a single bitcoin reached $21,569 with a circulating supply of 18.57 million BTC, helping its market cap reach a little over $400 billion.

Of note, changes in the price of a cryptocurrency (or stock), as well as the issuance or burning of its tokens, can significantly alter its market cap.

Market capitalization allows investors to quickly assess a cryptocurrency’s value by comparing its total value to other cryptocurrencies, thus helping them make more informed decisions.

Taking it a step further, this calculation also helps in evaluating the risk associated with investing in specific cryptocurrencies, as smaller market caps equate to higher investment risks.

In this way, some investors separate companies and cryptocurrencies into different categories based on their relative market caps.

• Large-cap – Major players in their industry, measured by a market cap of over $10 billion. In cryptocurrency, Bitcoin and Ethereum fall under this umbrella.
• Mid-cap – Companies and cryptocurrencies that have a market cap between $2 and $10 billion. Mid-cap cryptocurrencies include Litecoin, Chainlink, and Polkadot.
• Small-cap – Any company, or cryptocurrency, that has a market cap under $2 billion, and are considered higher risk investments. Small cap cryptocurrencies include Filecoin, Cosmos, and Uniswap

Lastly, cryptocurrency investors often use the total crypto market cap to get a bird’s eye view of the performance of the crypto asset industry, as it is an aggregate measure of the market cap of all cryptocurrencies.