Market Cap

Market capitalization is the total value of all tokens in the total supply of a token. Also known as market cap, market capitalization means the same thing in respect to cryptocurrencies as it does in the world of traditional finance with stocks; in that world, market cap refers to the total value of all shares of a company.

Token price is the going market rate for a single token/share. Token share and market cap can be calculated from each other using the total supply.

Which Metric is More Important?

While both metrics ultimately mean the same thing - the worth of the project - they can each be misleading depending on the interested party.

Misconceptions with Market Cap

A market cap trending upwards could be a sign of a great investment. However, token price should be mapped against the market cap to determine what’s going on with the supply.

Don’t forget about the third variable in the equation of market cap and token price: total supply. If market cap and total supply increase at the same rate, the individual token price will remain constant.

Misconceptions with Token Price

For a prospective investor, a low token price can be appealing. If SHIB token is only a fraction of a penny, that’s great, right? You can buy a massive amount of tokens for a small price and you’ll be rich if the token price goes to a dollar! Not exactly. A low token price does not imply large upward potential.

The market cap is what is best to look at when considering the upward potential of a project, or its standing in reference to competitors. If Project A has a market cap of $10 with 10 tokens priced at $1 each, and Project B has a market cap of $20 with 100 tokens priced at $0.20 each, that does not make Project B inherently a ‘better deal’ because the token price is cheaper.

To relate this to traditional finance, companies do stock splits all the time. This means the total supply is doubled, and every holder of a share is given a second one. This doesn’t actually increase the value of the company, it merely halves the price per share while doubling the total supply; market cap remains constant.

Recommendations

When looking at the price of an asset, view both the market cap and the token price over time to see the true trend.

Pay attention to inflation rates, issuance, and vesting schedules.

Liquidity is another critical variable. In situations with low liquidity, a very small amount of money can massively affect token price and by extension the market cap.