Market Capitalisation
Learn how crypto market capitalisation is calculated, how it differs from fully diluted valuation, and why market cap is useful but incomplete as a valuation measure.
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This lesson introduces a core market concept that appears across crypto exchanges, data platforms and trading analysis.
Last reviewed: 20 August 2026
- What market cap is
- Formula and FDV
- How to interpret it
- Limitations
- Trader relevance
- Common mistakes
- Checkpoint
- FAQ
- Summary
How the concept fits into crypto markets
What is crypto market capitalisation?
Market capitalisation is usually calculated as current price × circulating supply. It estimates the current market value of the units that are considered to be in circulation.
💡 Simple example
If a token trades at £2 and has 100 million tokens in circulating supply, its market capitalisation is approximately £200 million.
Market cap vs fully diluted valuation
| Metric | Typical formula | What it answers |
|---|---|---|
| Market capitalisation | Price × circulating supply | What is the current value of circulating units? |
| Fully diluted valuation (FDV) | Price × maximum or fully diluted supply | What would valuation be if the full assumed supply traded at today's price? |
What market cap can tell you
- Relative size: useful for comparing the scale of cryptoassets.
- Index weighting: some crypto indices use market-cap weighting.
- Risk context: very small-cap assets often have lower liquidity and greater price-impact risk.
- Not intrinsic value: market cap is a price-based snapshot, not a valuation model of future cash flow or utility.
Why market cap can mislead
Market capitalisation multiplies the marginal market price by the entire circulating supply. It does not mean that all holders could sell at that price.
Thin liquidity
A small amount of trading can move price substantially, changing market cap without comparable new capital entering the asset.
Concentrated ownership
Large insider or whale holdings can reduce the amount of supply that is genuinely liquid.
- Token unlocks can increase supply later.
- Low-float assets can look valuable despite limited liquidity.
- Wash trading or poor-quality price feeds can distort apparent valuation.
How to use market cap properly
Treat market cap as a classification and comparison metric, then combine it with liquidity, volume, circulating supply quality, unlock schedules and concentration data.
⚠️ Common misunderstandings
- “A low token price means a project is cheap.” Token price without supply tells you very little about relative valuation.
- “Market cap equals the amount of money invested.” It is a price-times-supply calculation, not cumulative cash invested.
- “FDV and market cap are interchangeable.” They can differ dramatically when a large share of tokens is not yet circulating.
✅ Quick checkpoint
- How is market capitalisation normally calculated?
- Why can a £0.10 token have a larger market cap than a £1,000 token?
- Why should FDV be reviewed alongside circulating market cap?
Frequently Asked Questions
❓ Is a higher market cap safer?
Not necessarily. Larger assets often have deeper liquidity and longer track records, but they can still experience large drawdowns, operational failures or regulatory risk.
❓ Can market cap rise without much new money entering?
Yes. If marginal trades move the market price higher, multiplying that new price by the circulating supply can increase market cap substantially.
❓ Why do data sites show different market caps?
They may use different circulating-supply estimates, price sources or treatment of locked and bridged tokens.
📋 Summary
- Market cap is generally price multiplied by circulating supply.
- FDV uses a broader assumed supply and can highlight future dilution risk.
- Market cap is useful for relative size, but liquidity, ownership and token supply structure remain essential context.
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