What 'Market Cap' Really Measures (and What It Doesn't)

Market capitalisation is everywhere — the headline that ranks coins and companies against each other. It's a useful shorthand, but treating it as a bank balance is where a lot of confusion begins.

The formula, and its quiet assumption

Market cap is simply price multiplied by the number of units in circulation. The quiet assumption baked in is that every unit could be sold at today's price. In reality, trying to sell a large position moves the price against you, sometimes sharply on thinner assets.

Circulating vs total supply

In crypto especially, the gap between circulating supply and total or fully-diluted supply can be enormous. A token with a low price but a huge locked allocation waiting to unlock has a very different risk profile from one where nearly everything is already trading. Two assets can share a market cap and be nothing alike underneath.

For stocks, the analogue is share count and dilution — buybacks shrink it, new issuance grows it. The number moves for reasons that have nothing to do with the day's price.

How to use it well

Use market cap for rough scale and comparison, not precision. Ask what supply figure is behind it, and whether large unlocks or issuance are coming. It answers 'how big, roughly?' — never 'how much could I actually get out?'