Investors rely on different stats to give them a better picture of what's going on in the market. One of the single most common of those stats is market capitalisation.

Market capitalisation, or simply market cap, is nothing new. Stock markets use market cap as a way to estimate the total value of a company. For stocks, the market cap formula is simple:

Price of a single share x total shares outstanding = market cap

Multiplying outstanding shares by current share price indicates what the potential valuation of the company would be if all shares were purchased. 

With stocks, share price changes daily. Total shares outstanding is much more static; companies rarely offer additional shares. When they do, it's a significant event that requires careful planning and management - not something that happens overnight.

What is crypto market cap?

Crypto market cap works in a similar way. With coins or tokens instead of shares, the basic formula is roughly the same:

Price of a single token x total circulating supply = market cap

Find out how many tokens for a given project are in existence, multiply all of those coins by the individual value of each one, and you've got your market cap figure. 

Circulating supply vs. Total supply

Circulating supply differs from total supply, which is  often greater. Not all of the tokens in existence will be available to the public; different projects may release tokens slowly from a reserve or otherwise lock tokens via different mechanisms.

For that reason, typically the circulating supply is used to calculate market cap, however the total market cap, otherwise known as the fully diluted market cap, can also provide useful insights into the value of the project at the end of its emission schedule.

Let’s consider Bitcoin

BTC on Coinmarketcap, as of May 16th 2022

With Bitcoin, there are currently 19,041,231 in circulation but its maximum supply is 21,000,000. That means that there are roughly 2,000,000 units that still aren't in circulation.

At the time of writing, each Bitcoin is worth around $30,000, meaning that:

  • Market cap considering circulating supply: $571,236,930,000
  • Market cap considering total supply: $630,000,000,000

Obviously, Bitcoin has the largest crypto market cap in the market.

Now let's use the Phuture token, PHTR, as an example.

PHTR on Coinmarketcap, as of May 16th 2022

There are currently 25,641,918 PHTR tokens in existence. Each one is valued at $0.06. That gives a current circulating market cap of $1,743,146. However, the total number of PHTR tokens is equal to 100,000,000. Thus, the fully diluted market cap is $6,000,000.

Differences between stock and token market capitalisation

However, there is at least one key difference between a crypto token's market cap and the market cap for a particular stock.


With stocks, the circulating supply is fairly static; when it does change, that information tends to be well-publicised, and changes occur at rare intervals.


With crypto, both the token price and the circulating supply is in constant flux. Look at Bitcoin again; by the time you read this article, that circulating supply figure will have grown. That's because new BTC tokens are being mined constantly, increasing the total supply in circulation. 

Mining is unique to the Proof-of-Work consensus mechanism in use by Bitcoin and Ethereum (for now). Other tokens use mechanisms that mint new tokens as part of the Proof-of-Stake consensus. Many of those networks also regularly "burn" or destroy tokens.

That makes the crypto market cap a more dynamic metric than the market cap for a typical stock.

How do investors use market cap?

Market cap functions as an important indicator of the overall health of the given stock. On its own, the market cap of a particular stock or token can tell investors about the current popularity and success of the project. But when combined with other key metrics, market cap can tell investors even more about the health of the project and give valuable insights as to where the project might go.

A proxy for size

Stocks are frequently classified according to market cap size. Those categories are:

  • Large-cap: Market cap of $10 billion and up
  • Mid-cap: Market cap between $2 -$10 billion;
  • Small-cap: Market cap from $250 million to $2 billion;
  • Micro-cap: Market cap under $250 million.

Those categories aren't set in stone; some analysts like to introduce other categories, such as a mega-cap category for companies with a value over $200 billion.

Why include so many categories? Because investors can find valuable trading opportunities within each class.

 A larger market value doesn't necessarily mean a successful project, and some small-cap companies might be poised for rapid growth.

Market cap and crypto

Applying those cap sizes to crypto can shed some additional light on the market.

According to

  • Mega-cap ($200 billion and up) - BTC, ETH 
  • Large-cap ($10 billion to $200 billion) - USDT, USDC, BNB, XRP, ADA, SOL, BUSD, DOGE, DOT
  • Mid-cap ($2 billion to $10 billion) - Currently there are 24 tokens in this category, including projects like AVA, TRON, DAI, MATIC, APE, and MANA.
  • Small-cap ($250 million to $2 billion) - 117 tokens, including FTM, MAKER, GUSD, ZRX, STEPN (GMT).
  • Micro-cap (Under $250 million) - PHTR and 9,948 other tokens.

The top categories are still sparsely populated; the US stock market generally has between 25-30 mega-cap stocks at any one point, or roughly the number of mega-cap and large-cap cryptocurrencies combined. 

Market capitalisation and other key stats

By itself, market cap is useful; combined with other key stats, it becomes a much more accurate indicator of current health and future opportunity.

Price of each token

Market cap can help to explain wild price fluctuations. When Terra/Luna collapsed, this played out in real-time. The UST stablecoin became unpegged, causing a dramatic spike in the supply of LUNA. In a matter of hours, circulating supply skyrocketed from roughly 350 million to over 6.5 trillion. Unsurprisingly, LUNA's price cratered, and the token lost over 99% of its value.

Trading volume

With crypto, total market cap can estimate the overall value of a project; trading volume indicates current interest. A quick look at trading volume over time highlights trends that can be helpful for investors deciding when and if to jump into a particular project.


Market cap has an impact on volatility. Crypto assets with smaller market caps can be more subject to wild swings in value, while having a larger market cap can provide more stability in its volatility.

Market cap as an index strategy

When considering an index or an investment portfolio, utilising market cap as a baseline for how much you should invest in each asset (in other words, the weight of each asset) has proven to be a great strategy to surf the overall sector trend, rather than the extremes.

In fact, that’s the strategy Phuture uses with its PDI index. PDI gives investors exposure to the top DeFi assets, weighted by market capitalisation. This way, this index provides a well-balanced approach to the sector, rather than skewing too heavily towards the smaller and more volatile tokens.

In conclusion…

Investors rely on market cap to gain an estimate of a token's stability, popularity, and value. It's not an exhaustive measurement; market cap doesn't speak to the underlying fundamentals of a project. 

Market cap also doesn't predict where a project might go next, other than in a very general sense. Small and mid-cap tokens are often considered growth opportunities. 

Market cap is an essential concept for financial markets all around the world, including crypto. Phuture also utilises market capitalisation as a key concept on which to build index funds.

Learn more about how Phuture uses market cap for the investment strategy of PDI here