How to properly evaluate crypto projects through the lens of market capitalization

Introduction: Why Size Matters in Crypto

When an investor decides which project to invest in, they often look at the token price. But this is a mistake. The true indicator of the scale and seriousness of a cryptocurrency is market capitalization — a metric that tells about the total value of the network at the current moment.

Unlike a simple price, the market capitalization in the crypto space provides a real understanding of how much money is actually invested in a specific project.

How Capitalization is Calculated: Basic Formula

The market capitalization of a cryptocurrency is calculated based on a simple formula:

Market capitalization = current price of one token × number of tokens in circulating supply

For example: if a token costs 5 dollars and there are 50 million coins in circulation, then the market capitalization amounts to 250 million dollars.

Market capitalization data and project ratings are usually available on specialized cryptocurrency research services. These platforms take data from many trading venues and calculate a weighted average price, which helps avoid significant price discrepancies across different exchanges.

Stock Market Capitalization in Action: Practical Examples

Let's consider two hypothetical projects:

• Project X: 2 million tokens × 50 dollars = 100 million dollars in capitalization
• Project Y: 500 million tokens × 0.20 dollars = 100 million dollars in capitalization

Both have the same market capitalization, but the structure is entirely different. This shows that a high price does not always mean popularity — it all depends on the total volume of assets in the system.

Where capitalization is used:

Comparison of assets regardless of price range — an investor can easily compare large projects ( with a capitalization in billions) to young ones ( with a capitalization in millions) on a single scale.

Tracking project progress — if the capitalization of a crypto project increases, it means that the community is expanding and trust in it is growing.

Market Capitalization as an Investment Compass

Portfolio distribution by risk size

Large projects such as bitcoin and ether are often viewed as a conservative choice. Their high market capitalization provides them with better liquidity and stability. These assets have a long history and a large user base, making them less susceptible to short-term fluctuations.

In contrast, young cryptocurrencies with low capitalization are often associated with higher risk. They have lower liquidity, are traded less frequently, and even a small wave of selling can lead to a critical drop in price. Investors take this factor into account when allocating funds between aggressive and conservative assets.

The use of capitalization in financial monitoring

As in traditional financial markets, there are indices in crypto that track trends of a group of the largest assets. Such instruments are often composed of cryptocurrencies with the highest market capitalization and serve as a benchmark for the entire sector.

Circulating and Maximum Supply: What Does It Mean

Circulating supply is the number of tokens currently available for trading in the market. This does not include:

• Tokens locked in smart contracts
• Coins held by the team for future purposes
• Burned or inaccessible assets

The current capitalization is calculated based on the circulating volume, which provides the most realistic representation of the true value of the project at this moment in time.

Fully Diluted Valuation: Long-Term Perspective

On paper, a crypto project may have a market capitalization of 100 million dollars, but if it has 900 million locked tokens that will later enter the market, the real situation is different.

Fully diluted value (FDV) shows what the capitalization would be if all tokens were to enter circulation simultaneously:

FDV = current price × maximum supply

It is critically important to understand this, as a massive influx of new tokens without corresponding demand can lead to price dilution. Comparing the current market capitalization with FDV gives investors an idea of potential risks in the future.

Other indicators for comprehensive assessment

The capitalization of the stock market is just one of the tools. For a complete picture, it is worth considering:

• Trading Volume — indicates the activity of traders.
• Total Locked Value (TVL) — this is critically important for DeFi projects.
• Token Unlocking Schedules — allow predicting future volatility

Conclusion: Capitalization as a Foundation for Decisions

Market capitalization remains one of the most reliable indicators of the scale of a crypto project. However, it is important to remember: no single metric provides a complete picture. An investor should combine capitalization analysis with studying unlocking charts, volumes, technology development, and the future plans of the team to make an informed decision.