What Is Market Capitalisation?

Market capitalisation is price multiplied by circulating supply. It exists because price alone tells you nothing about size: a $0.001 token and a $60,000 token convey no information about which project is larger until you know how many units exist.

This is why the intuition that a cheap coin has "more room to grow" is a category error. A token at $0.001 with a trillion units in circulation is a $1 billion asset. For it to reach $0.01, it needs to become a $10 billion asset — the same tenfold increase in real capital that any other asset would require. The low unit price is cosmetic.

Market cap is the standard tool for comparing assets and for rough risk tiering. Large caps tend to be more liquid, less volatile and less prone to manipulation; small caps offer more upside and considerably more ways to lose everything. It is a reasonable first filter, and a poor final one.

Its main weakness is that circulating supply is a slippery number. Tokens locked in vesting contracts, held by the founding team, or reserved for future emissions may or may not be counted, and projects have an obvious incentive to report the figure that flatters them. Two sources can report materially different market caps for the same asset.

This is why fully diluted valuation is the necessary companion metric. A token with a $50 million market cap and a $2 billion FDV has 97.5% of its supply still to be released, and every future unlock is potential sell pressure against holders who bought the current float.