<p>Market capitalization, often referred to as market cap, is a metric that measures the total value of a <a href="/NewSite/encyclopedia/cryptocurrency/" class="ency-link">cryptocurrency</a>'s circulating supply. It's calculated by multiplying the current price of a cryptocurrency by its circulating supply, which is the number of coins or tokens available for trading in the market.</p>

<h2>How It Works</h2>
<p>Market cap is a simple yet powerful tool for comparing the size of different cryptocurrencies. Here's how it works:</p>
<ul>
  <li><strong>Price per Coin/Token</strong>: This is the current market price of a single coin or token, determined by supply and demand.</li>
  <li><strong>Circulating Supply</strong>: This is the number of coins or tokens currently available for trading. It excludes coins or tokens that are locked up or reserved for future use.</li>
</ul>
<p>To calculate market cap, these two values are multiplied together:</p>
<p><strong>Market Cap = Price per Coin/Token × Circulating Supply</strong></p>

<h2>Why It Matters</h2>
<p>Market cap is a crucial metric for investors and traders in the crypto market for several reasons:</p>
<ul>
  <li><strong>Size Comparison</strong>: It helps compare the size of different cryptocurrencies. A higher market cap indicates a larger, more established project, while a lower market cap may suggest a smaller, potentially riskier, but also potentially more rewarding investment.</li>
  <li><strong>Risk Assessment</strong>: Market cap can provide insights into a project's risk. Generally, larger market cap cryptocurrencies are less volatile and less risky than smaller ones.</li>
  <li><strong>Liquidity</strong>: Market cap can also indicate liquidity. A higher market cap often means a more liquid asset, making it easier to buy and sell without significantly affecting the price.</li>
</ul>