Market cap, which is the abbreviation of market capitalization, is a financial metric used to measure the total value of a publicly traded company or a cryptocurrency. It represents the market value of a company’s outstanding shares or a cryptocurrency’s circulating supply, providing an indication of its relative size within the market.
M.Cap categorizes companies or cryptocurrencies into different size categories such as large-cap, mid-cap, or small-cap for stocks, while in the crypto space, it helps assess the relative size and importance of different cryptocurrencies within the broader digital asset market.
It is a widely used metric by investors, analysts, and traders to gauge the size, performance, and significance of a company or cryptocurrency within its respective market.
However, it’s important to note that market capitalization alone might not provide a complete picture of a company’s or cryptocurrency’s fundamentals, and other factors such as trading volume, technology, adoption, team, and future potential should also be considered when making investment decisions.
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Formula For Market Capitalization
For publicly traded companies:
M.Cap = Current Stock Price x Total Outstanding Shares
For cryptocurrencies:
M.Cap = Current Price of Cryptocurrency x Total Circulating Supply
In essence, market capitalization is calculated by multiplying the current price of an individual stock (in the case of companies) or the current price of a single unit of a cryptocurrency by the total number of outstanding shares (for stocks) or the total circulating supply (for cryptocurrencies). This results in the total market value of the company or cryptocurrency.
Also Read: Top 10 Must Have Cryptocurrencies In 2024
The M.Cap of a cryptocurrency is calculated by multiplying the current price of the cryptocurrency by its total circulating supply. It’s a commonly used metric to assess the relative size and value of a cryptocurrency within the market.
For instance, if a cryptocurrency has a current price of $100 and a circulating supply of 10 million coins:
Market Capitalization = $100 x 10,000,000 = $1,000,000,000
This means the M.Cap of that cryptocurrency would be $1 billion.
Its Importance To Investors
M.Cap helps investors and analysts gauge the relative size and dominance of a cryptocurrency compared to others in the market. It’s important to note that market capitalization is just one of many metrics used to assess a cryptocurrency’s value and should be considered alongside other factors such as trading volume, technology, adoption, team, and the project’s underlying fundamentals.
What Is Diluted Market Capitalization?
Diluted M.Cap takes into account the maximum potential supply of a cryptocurrency instead of its current circulating supply. It factors in all possible coins that could exist if all tokens were issued or mined, including those that might not currently be in circulation.
How To Calculate Diluted Market Cap (DMC)
The formula for calculating DMC is the same as for regular market capitalization:
Diluted M.Cap = Current Price of Cryptocurrency x Total Potential Supply
However, instead of using the circulating supply, as in regular market capitalization, the total potential supply includes all tokens that could potentially exist based on the cryptocurrency’s maximum supply limit or issuance schedule.
For example, if a cryptocurrency has a current price of $100 and a maximum total supply of 20 million coins:
Diluted M.Cap = $100 x 20,000,000 = $2,000,000,000
This would mean the diluted market capitalization of that cryptocurrency, considering its maximum potential supply, would be $2 billion.
Diluted M.Cap provides a theoretical upper bound on the market value of a cryptocurrency, assuming all tokens are issued or mined, but it’s important to note that not all tokens might be in circulation at a given time due to various factors such as locked tokens, vesting schedules, burned tokens, or other mechanisms that limit their availability. Therefore, DMC should be considered as a theoretical value rather than a precise reflection of the cryptocurrency’s current market value.
Difference Between Regular and Diluted Market
Market capitalization and diluted market capitalization are key metrics used to evaluate the relative size and potential value of cryptocurrencies within the market.
Market Capitalization:
It is calculated by multiplying the current price of a cryptocurrency by its circulating supply. This metric provides a snapshot of the total value of the cryptocurrency that’s currently available in the market.
Diluted Market Capitalization:
This metric considers the maximum potential supply of a cryptocurrency instead of its current circulating supply. It calculates the theoretical upper limit of the cryptocurrency’s market value by multiplying the current price by the total potential supply.
Significances
Both metrics have their significance:
Market capitalization: is widely used and provides a real-time assessment of a cryptocurrency’s value based on the coins in circulation. It’s a practical indicator of a cryptocurrency’s relative size in comparison to others in the market.
Diluted market capitalization offers an understanding of the potential maximum value a cryptocurrency could reach if all tokens were in circulation. However, it’s a theoretical value and may not accurately represent the cryptocurrency’s true market value due to factors like locked tokens, vesting schedules, or other limitations on token availability.
In conclusion, while market capitalization is a practical and widely used metric for assessing a cryptocurrency’s current value, diluted market capitalization provides a theoretical upper limit based on the maximum potential supply. Both metrics offer insights into a cryptocurrency’s position in the market, but investors should consider other factors alongside these metrics to make informed investment decisions.
