What is market cap?

Market cap (or market capitalisation/market capitalization) is a term you frequently hear crypto enthusiasts use, mainly as a measure of the underlying value of a coin or token beyond its current market price.

Market cap isn't a term coined by the crypto community though, its more common and long established usage is in defining the value of a company via the mechanism of multiplying a company's share price by the number of shares outstanding.

So, company A with a total of 1 million shares and current share price of $1 per share would have a market cap of $1m. Company B with a total of 50 million shares and a current share price of 20c per share would have a market cap of $10m, despite the share price being significantly lower. This would indicate that the underlying value of company B is, in fact, greater.

Although many outside the crypto world are far from convinced as to whether this translates to cryptocurrencies or whether the market cap of a coin or token is anything more than an arbitrary number - many crypto investors (or HODLers as they often self-referentially call themselves) still base their investing decisions on this simple calculation.

As with shares, the market cap of a crypto can be calculated by multiplying the price by the circulating supply using the following formula:

Market Cap = Price X Circulating Supply

So to apply the formula to a worked example using NEO:

$7,415,720,000 = $114.09 X 65,000,000 NEO
(figures from CoinMarketCap 12/02/18)

Which gives NEO a market cap of $7.4bn at time of writing.