10/14/2025

13 min read

What is market capitalisation (market cap) and why does it matter?

Bitpanda Academy Beginners 18 What Is The Market Cap

Market cap (or market capitalisation) refers, by definition, to the total value of all issued shares of a cryptocurrency or a company. In this guide, we explain what market capitalisation, or market cap, is. We'll also take a closer look at its importance in the crypto market and the different types that exist.

Definition: Market capitalisation, or market cap, refers to the total value of the coins or tokens created by a cryptocurrency.
Calculation: You can calculate market capitalisation by multiplying the current price by the total number of coins in circulation.
Function: It provides a quick overview of the size and significance of a cryptocurrency and serves as a useful tool for evaluating cryptocurrencies.
Categories: Analysts categorise cryptocurrencies by market cap into large-cap, mid-cap and low-cap, with each category offering different risk levels and growth potential.

Definition: what does market capitalisation or market cap mean?

Newcomers to finance often ask: what exactly is market capitalisation (market cap), for example when it comes to stocks?

The term market capitalisation originates in the stock market. Also referred to as stock market value or market cap, it represents the total value of all outstanding shares of a company. Stock portals or crypto platforms calculate market cap by multiplying the current share price by the total number of shares issued by the company. This market value allows companies to be categorised by size, e.g. into small-, mid- or large-caps.

As an important metric for investors, market capitalisation has made its way from the stock exchange into the crypto world, where it also plays a central role. That's because investors often assess coins or companies based on their market capitalisation. For them, the market cap is highly significant, as it helps them better evaluate the size of a company and the risk of an investment.

What does market capitalisation (market cap) mean in cryptocurrencies?

In the context of cryptocurrencies, market capitalisation refers to the total value of all created coins or tokens. To calculate market capitalisation, you multiply the current price of a single coin or token by the total number of coins or tokens in circulation – a similar principle to stocks, which results in a low spread because it’s a liquid asset. A high market capitalisation indicates that the coin is in high demand among investors and widely used. The latter is especially why Bitcoin and Ethereum lead the top 100 by market cap.

Did you know?Did you know? Coins and tokens may sound interchangeable, but in crypto they play different roles. Let's clarify: Coins are tied to their own blockchain and function as digital money. Tokens, however, are created on existing blockchains and can do all sorts of things, like enabling project votes (called goverannce tokens) or acting as digital versions of assets.

In some regards, market capitalisation in cryptocurrencies means something different than in company stocks. In stocks, market cap is also based on revenue or profits. In contrast, the market cap of cryptocurrencies is based solely on market supply and demand. So market cap isn’t tied to companies, but to individual cryptocurrencies.

The market cap gives you a quick overview of a cryptocurrency’s size and significance. It therefore serves as a useful tool for investment decisions. However, you shouldn't base your investment solely on the market cap, but also consider other important indicators. This can help you partially reduce the risk of a poor investment.

What factors are relevant when determining market capitalisation?

You now know what market capitalisation means in stocks and crypto and how to calculate it. But for the calculation itself, two factors play a crucial role: the circulating supply of the stock or cryptocurrency and the current share price or market price.

The issue? Both values rise and fall by the second. That’s because supply and demand determine market price, and the circulating supply constantly changes due to mining, staking or token burns (permanent removal of tokens from circulation). In addition, the circulating shares or tokens also influence the calculation.

How can you calculate market cap?

If you want to calculate market cap yourself, you multiply the current price of a cryptocurrency or share by the current circulating supply. The formula is:

Market cap = price x circulating supply

For example, if there are 1,000,000 coins of a cryptocurrency and the current price is €20 per coin, the market cap is calculated as follows:

€20 per coin x 1,000,000 coins = €20,000,000

The market cap, i.e. the total value of all coins in circulation, is €20,000,000. With the help of this formula, you can better understand what market capitalisation actually is and how its value is made up.

Example: What is the market capitalisation of Bitcoin?

The market cap of Bitcoin (BTC) constantly changes due to price fluctuations and the continuous release of new Bitcoins by miners. In July 2025, Bitcoin’s market capitalisation is around $2 trillion. This value results from a Bitcoin price of approximately $101,650 and an estimated circulating supply of around 19.89 million BTC (as of July 23, 2025).

In brief: The circulating supply refers to all coins, tokens or company shares that are currently publicly circulating in the market. That means everything you can buy, sell or trade. But not all existing coins or tokens count. Some, for instance, are still held in developer wallets or will only enter the crypto space later. These coins already exist, but are not yet tradeable. Imagine this: a developer creates 10 million coins but releases only 8 million. The circulating supply would then be 8 million. And only these are included in the calculation for market cap.

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What are the practical applications of market capitalisation?

Market cap lets you compare cryptocurrencies or companies (stock prices). This comparison provides an initial clue as to how sensible an investment might be and what risks are involved. Cryptocurrencies are categorised by market cap into three groups, just like companies traded on the stock exchange:

Large-cap cryptocurrencies: These include all cryptocurrencies with a market cap of over $10 billion. Among the most well-known are Bitcoin, Ethereum and Ripple (XRP). In July 2025, Bitcoin reached a market cap of over $2 trillion for the first time. Compared to other cryptocurrencies, Bitcoin is considered a lower-risk investment. It has already shown growth strength in the market and has high liquidity. This means the price doesn’t drop significantly even if many investors sell and take profits.
Mid-cap cryptocurrencies: These have a market cap between $1 billion and $10 billion. They offer high growth potential but are also seen as riskier investments.
Low-cap cryptocurrencies: With a market cap of less than $1 billion, these cryptocurrencies experience the highest price volatility and are considered high-risk investments.

In brief: Market capitalisation is considered a key metric! With it, you can compare the total value of different cryptocurrencies. Large-cap cryptocurrencies carry the least risk in this regard. In contrast, low-cap cryptocurrencies experience high price volatility, which means they carry high risk.

What role does market capitalisation play in evaluating crypto?

Market capitalisation plays an important role in the evaluation of cryptocurrencies. It provides you with valuable insights into the size, growth potential and market stability of a digital currency. Market capitalisation can be helpful in assessing the following aspects:

Size

Market cap tells you how large a cryptocurrency is compared to others in the crypto market. A larger market capitalisation indicates broader acceptance and stability of a cryptocurrency, whereas smaller market caps may point to less established projects.

Risk

You can use market capitalisation to assess the risk of an investment. Cryptocurrencies with a high market cap are generally considered less risky than those with a low market cap.

Growth potential

While a high market cap suggests a certain level of maturity and stability, cryptocurrencies with a medium to low market cap may offer greater growth potential.

Market comparisons

Market capitalisation allows for comparisons between different cryptocurrencies, regardless of their price per token. This helps form a more realistic picture of the relative size and importance of projects in the crypto market. Bitcoin is considered the leading currency in the crypto market due to its high market cap. In the crypto space, market cap comparisons are therefore often aligned with Bitcoin.

Market liquidity

A higher market cap often indicates better liquidity. That means it's easier to trade large volumes of the currency without significantly affecting the market price.

While market capitalisation is an important and revealing factor in evaluating a cryptocurrency, you shouldn’t base your investment decisions solely on market cap. To make an informed investment decision, you should incorporate other key metrics into your assessment.

Other factors for evaluating cryptocurrencies

Before deciding to invest in a specific cryptocurrency, like Ethereum or Tether, market cap can help you evaluate the currency. However, other factors and metrics are also important to make a well-informed investment decision.

Trading volume

Trading volume shows how much of a particular cryptocurrency has been traded within a given time period. A high trading volume may indicate strong interest in the crypto market and good liquidity. A low volume, on the other hand, may signal a lack of interest or liquidity issues.

Liquidity

Liquidity tells you how easily you can buy or sell a cryptocurrency. High liquidity makes it easier to enter and exit positions at fair prices without long waiting times.

Volatility

Volatility indicates how much a cryptocurrency's price fluctuates over a certain period. Currencies with high volatility carry higher risk, but also offer greater potential for returns.

Active addresses

The number of active addresses sending or receiving transactions within a given timeframe can be an indicator of the usage and adoption of a cryptocurrency.

Technology development

The growth and development of the underlying blockchain – including the number of developers, commits and general activity – can influence the longevity of a cryptocurrency.

Security

The consensus mechanism (e.g. Proof of Work or Proof of Stake) and the blockchain's security measures are key to evaluating its resistance to attacks and the sustainability of the network.

Tokenomics

The token economy, including total supply, distribution, emission rate and mechanisms such as staking rewards, is important for the long-term development of a cryptocurrency.

Regulations

The legal situation and acceptance by businesses and governments can have a major impact on the success and adoption of a cryptocurrency.

Looking beyond just price or market cap, these metrics offer a deeper understanding of a cryptocurrency and can support more informed investment decisions. To properly evaluate cryptocurrencies, it’s important to consider market capitalisation alongside other key factors.

Conclusion: The importance of a holistic evaluation approach for cryptocurrencies

Market capitalisation is a fundamental concept in the crypto world and the stock market, reflecting the total value of all issued coins or company shares. It serves as an important indicator in evaluating a cryptocurrency and allows you to compare the relative significance of different currencies. Alongside market cap, factors such as trading volume, liquidity and volatility are crucial for gaining a comprehensive understanding of a cryptocurrency and making a well-considered investment decision.