Market cap is shorthand for market capitalization. It is a measure of the value of a currency. It is also typically used as a quick way to compare the size of two crypto projects.
For instance, the market cap of Bitcoin is $422B while Ethereum’s is $184B. Thus, Bitcoin has a significantly larger market cap than Ethereum.
Investors calculate market cap by multiplying Price x Circulating Supply. If you wanted to calculate Bitcoin’s market cap, you would multiply the price you would pay for a single bitcoin (~$22,100) by the number of bitcoins in circulation (~19,100,000 BTC). Thus, $22.1k x 19.1M = $422B.
Market cap can also be a relevant signal of the crypto project’s stability. For example, an additional $4B would need to go into Bitcoin for its market cap to increase 1%. For this reason, investors do not anticipate currencies with large market caps to be as volatile as small cap cryptos like Litecoin ($7B market cap). However, as we have seen in 2022, crypto projects with large and small market caps can experience significant swings in value.
