What Is Market Capitalisation
Price multiplied by supply. Easy to calculate, quoted constantly, and misleading for most of the assets it is applied to.
What this covers
Market capitalisation is the current price multiplied by the number of units in circulation. It is the default ranking metric and it deserves more scepticism than it gets.
The two numbers
The price is set by the most recent trade, which may have been small.
The circulating supply is not standardised. Different data providers treat locked, vested and reserved tokens differently, which changes the result.
The problem with the price
Market capitalisation implies that the entire supply could be sold at the current price. For most assets it demonstrably could not.
An asset with a large notional valuation and a few hundred thousand dollars of actual depth would fall dramatically if any substantial portion were sold. The figure describes a hypothetical that the market could not absorb.
The problem with the supply
A token where a small fraction circulates and a large amount unlocks on a schedule has a modest market capitalisation today and a much larger supply arriving.
Fully diluted valuation attempts to address this by counting all tokens, which introduces the opposite distortion by valuing tokens that may never be issued.
Both figures are published. They measure different things and are frequently compared to each other.
What to use instead
Depth. How much can be bought or sold within a percentage of the current price. Directly observable in the order book and much harder to manufacture than a price.
Volume from verified venues. Not aggregated totals, which have historically included fabricated activity.
Supply schedule. How many tokens enter circulation over the next year as a share of what circulates now. Frequently the most price-relevant fact about a token and rarely in the comparison table.
Where market capitalisation is reasonable
At the top of the ranking, for the largest assets, where liquidity is deep and the supply figure is settled.
The further down the list it is applied, the less it means, and it is applied all the way down.
The practical test
Before using a market capitalisation to compare two assets, ask whether either could actually be sold at the price used to calculate it.
For the largest assets on established venues, including a regulated exchange such as Collect & Exchange, the answer is broadly yes. For the long tail, the answer is no, and the comparison is between one real number and one imaginary one.