In simple terms, Market Cap is the Total Value of all the Coins in circulation multiplied by the price of a single coin.
What is Market Cap in Crypto?
At the time of this writing the Market Cap of Bitcoin is $876,985,568,054.05.
There are 18,920,593 BTC in circulation and one Bitcoin costs $46,350.85 at this Moment. Since Market Cap is calculated by multiplying Coins in circulation with the price of each coin I have to multiply:
18,920,593 X $46,350.85 = $876,985,568,054.05
In order to understand if a Coin or Token has the potential to grow in the future, New and also experienced Investors and Traders often take a look at the Market Cap. If the Market Cap is still very low and they believe in the Project, they think it’s a screaming buy and they invest their hard earned money.
But it’s not all that simple. To really understand the value of a Coin or Token, Investors have to understand the differences between circulating supply, total supply and max supply.
What is the Max Supply?
Max Supply is the Number of Coins that will be mined in total. For instance, there will be never more than 21,000,000 Bitcoins, so Bitcoins Max Supply is 21,000,000.
This Number will never change (except a Project burns Tokens), while the total supply and circulating supply can change anytime.
What is the Total Supply?
The total supply is the Number of Tokens that have been mined already. At the time of this writing the total supply of Bitcoin is 18,920,593 which means that another 2,079,407 Bitcoins will be mined to reach 21,000,000, the max supply.
What is the Circulating Supply?
The circulating supply is the Number of Coins that are in circulation and can be bought or sold. In Cryptocurrencies with a “Proof of Stake” mechanism, a lot of coins are locked and not available for trading. The more Coins are locked, the less are in circulation. Since Bitcoin has a “Proof of Work” Mechanism, the circulating supply and total supply is the same. On new coins or tokens the circulating supply can be much much lower than total supply, so the market cap is also much lower.
The true value of a token
Let’s take a look at a new currency, called VVS.
VVS with a Market Cap of $114,801,939.70. Crypto.com owns or has partnered with VVS Finance, so many people compare CRO with VVS. But since VVS is an AMM (automated Market Maker), it makes more sense to compare it with PancakeSwap.
Market Cap CAKE: $3,055,265,454.04
Market Cap CRO: $13,875,642,626.45
Market Cap VVS: $114,234,987.67
As we can see, the Market Cap of VVS is roughly 1/100th of the Market Cap of CRO and roughly 1/30th of the Market Cap of CAKE. So it seems to be super cheap.
But lets take a further look:
Fully Diluted Market Cap CAKE: $3,062,145,534.65
Fully Diluted Market Cap CRO: $16,682,155,084.62
Fully Diluted Market Cap VVS: $5,002,706,457.08
The Fully Diluted Market Cap is calculated by multiplying the current price of a currency with the max supply of that currency.
So as we can see the Fully Diluted Market Cap of CRO is only 3 times higher than the one of VVS. So before investing in a currency I strongly advise you compare the fully diluted market cap with other currencies in the same nice.