In the share market, market capitalisation – or market cap – simply indicates the current size of a publicly traded company in dollars. To calculate the market cap of a publicly traded company, simply take the number of publicly-issued shares and multiply it by the current market price of a single share.
For example, if Coca Cola has publicly issued 4.295 billion shares and the current market price of a single share is $49.36 USD then the current market cap of Coca Cola is approximately $212 billion USD.
In cryptocurrency, market cap represents the total dollar size of a project, determined by the last transaction price. You can calculate the market cap of a cryptocurrency by multiplying the circulating tokens by the current price of a single token.
For example, if there are 18.5 million bitcoin in circulation and the current price of 1 BTC is $10,500 USD, then the current market cap of bitcoin is approximately $194.3 billion USD.
Why Market Cap Is Important
Because market cap is a measure of value or size, investors and traders can use market cap to assess the risk and growth potential of a company, asset or project they are looking to invest in or trade.
Larger market caps generally indicate higher levels of maturity and stability, but also indicate lower growth potential opportunities.
On the other hand, smaller market caps often indicate plenty of growth potential but this is accompanied by higher levels of volatility, risk and potentially less liquidity.