Overview
Market capitalization (market cap) is a metric used to estimate the total value of all bitcoin in existence. It is calculated simply by multiplying the current market price of one bitcoin by the total number of coins that have been mined and are in circulation. Market cap provides a rough comparison between Bitcoin and other assets such as gold, stocks, or other currencies.
Calculation
Market Cap = Current Price × Circulating Supply
Example:
Price: $60,000
Supply: 19,700,000 BTC
Market Cap: $60,000 × 19,700,000 = $1.182 trillion
Limitations of Market Cap
Market capitalization is an imperfect metric for several reasons:
- Lost coins: An estimated 3-4 million bitcoin are permanently lost (including Satoshi's coins), inflating the apparent market cap since these coins can never be sold.
- Illiquid supply: Many bitcoin are held long-term and not available for sale at current prices. The "realized cap" (valuing each UTXO at its last moved price) offers an alternative perspective.
- Thin markets: A small amount of buying or selling can move the price significantly, meaning the market cap can swing dramatically without that much actual capital flowing in or out.
Common Misconceptions
A common error is equating market cap with the total amount of money invested in Bitcoin. If the price rises from $50,000 to $60,000, the market cap increases by $19.7 billion, but this does not mean $19.7 billion of new money entered the market. Price is set at the margin by the last trade.