PAW Documentation

Crypto Market Cap Explained

Crypto Market Cap Explained

What is Market Capitalization?

Market Capitalization is the value of the total amount of coins or tokens of a cryptocurrency.

How does Market Capitalization work?

The market capitalization of a coin or token is determined by multiplying the price of that coin or token by the number of coins or tokens in existence. For example, if there are 10,000,000 project tokens, each with a value of $2.50, then the market cap of that token is $25,000,000. If another coin has a total of 5,000 coins minted, and each coin is worth $300, then the market cap of that coin is $1,500,000.

Price per Token/Coin x Total Supply = Market Cap

$2.50 x 10,000,000 = $25,000,000

Circulating vs. Fully Diluted Market Cap

In the realm of cryptocurrencies, circulating supply and fully diluted supply are pivotal concepts that define the availability and potential future issuance of tokens or coins within a given blockchain ecosystem. Circulating supply refers to the total number of tokens actively trading in the market, encompassing those already mined, issued, or released for trading. This figure excludes tokens that are locked up, held by the development team, or otherwise not yet available for trading. On the other hand, fully diluted supply represents the maximum potential number of tokens that could be in circulation if all tokens were released, including those that are currently locked or reserved. This concept provides insights into potential future dilution of token value and helps investors gauge the long-term impact on market dynamics and investment decisions.

For example, if a project is expected to have 1,000,000 tokens but only 800,000 tokens have been minted, and each token is worth $1.00, the token will have a circulating market cap of $800,000, but a fully diluted market cap of $1,000,000.