Market Cap

Taxonomy

Market cap is a common shorthand for the phrase “market capitalization”. Market capitalization is a metric that originated in the stock market as a way to measure the total value of a publicly traded company. To calculate the market cap of a company, the value of one share of the company is multiplied by the total amount of shares in existence. For example, Marbles Inc. trades for $1.00 per share, 100,000 shares exist, Marbles Inc. is worth $100,000). This is thought to be a relatively accurate way to calculate the total value of a company.
When applied to a cryptoasset, the metric is intended to measure the total value of the cryptoasset and functions the same way. The circulating supply of a cryptoasset is multiplied by the value at which it is currently being traded for. Using an imaginary “Blockteq Coin” as an example, let’s say that there are 100,000 Blockteq coins in existence and they are currently being traded for one dollar. The market cap or total supposed value of Blockteq coin is $100,000.
Because the total circulating supply of cryptoassets varies significantly, a market cap can often be a better method than price to determine if a cryptoasset is over or undervalued. For example, if the price of two cryptoassets is 1 dollar, but the circulating supply of one is a million and the other is a billion, the cryptoasset with a billion tokens in circulation is valued significantly higher than that with one million.