Why do investors constantly look at the Market Cap of cryptocurrencies?

When you open CoinGecko or CMC, the first thing you see is market capitalization. It’s not just a number; it’s the main tool for understanding the scale of a crypto project and its position in the market. Let’s figure out how it works and why you should pay attention to it.

How is Market Cap calculated?

The formula is straightforward: current coin price × circulating supply = market capitalization.

Taking Bitcoin as an example. If BTC is trading at $91.83K with a circulating supply of 19,975,018 coins, the total value of all Bitcoins would be approximately $1834.22 billion. That’s the market cap of Bitcoin.

Why does this matter to investors?

Ranking and comparison: Market cap shows the hierarchy of cryptocurrencies. Projects with larger capitalization usually have a longer history, better liquidity, and greater investor trust.

Risk assessment: A large market cap often (but not always) indicates greater stability. It doesn’t guarantee profit but suggests a more established status within the ecosystem.

Market share: Market capitalization makes it easy to estimate what portion of the entire crypto market a specific asset occupies. This helps understand its influence and significance.

Main disadvantages of Market Cap

Supply concentration: If most coins are held on exchanges, by a fund, or by the creator, the actual free float is much smaller. This makes market cap a less reliable indicator of true value.

Does not predict the future: A high market cap yesterday doesn’t guarantee a high market cap tomorrow. The crypto history is full of examples of rapid crashes.

Issue with new projects: New cryptocurrencies often have minimal circulating supply, which can inflate their market capitalization relative to actual activity.

Conclusion

Market cap is a useful tool for quick orientation in the market, but not the only criterion. A savvy investor looks at capitalization in conjunction with trading volume, developer activity, the number of holders, and other metrics. Use market capitalization as a key filter, but not as the final decision when choosing an asset.