Diluted market cap meaning is the measure of market caps when all the coins are issued. Market cap (market capitalisation) is typically used as an indicator of the dominance and popularity of cryptocurrencies. To calculate the exact value of market cap, we multiply the current price by the circulating supply.
Market cap = Price X Circulating Supply
For instance, if one unit of a cryptocurrency is traded at $1.00, while the circulating supply is equal to 1,000,000 coins, then the market cap of the cryptocurrency would be $1,000,000. However, we need to note that market cap is dependent on the circulating supply of the cryptocurrency right now – rather than its total supply.
A general consensus is that the larger the market cap, the greater the popularity of the coin. A larger market cap would also mean that the coin is more likely to be stable.
Why is it important in crypto?
So what is market cap in crypto? It is the measure of a cryptocurrency’s dominance, essentially. Now, we will explore why market cap is important.
While price is one factor that we can measure a cryptocurrency’s value by, we can use market cap to determine the growth potential of a cryptocurrency.
Cryptocurrencies, like Bitcoin and ETHereum, that have a high market cap of over $10 billion, are likely considered to be low-risk investments. This is because despite the volatile nature of crypto, these coins have high liquidity and can withstand a larger number of buyers cashing out without crashing altogether. A lot of money is needed to significantly manipulate the price of such coins.
On the other hand, mid-cap cryptocurrencies (market cap between $1 billion and $10 billion) and low-cap cryptocurrencies (market cap of less than $1 billion) are generally considered higher-risk investments. Such coins are more susceptible to the volatility of the crypto market.
Drawbacks of diluted market caps
As mentioned, diluted market cap meaning is the measure of market caps when all the coins are issued. Simply put, this is the sum of the maximum supply of a coin multiplied by the coin’s current price. For instance, the current total amount of Bitcoin in circulation is 18,970,300, and the total amount BTC that will be minted is 21 million.
One of the main drawbacks of fully diluted market caps is that even though they show higher market caps, they disregard any potential decreases in the prices of tokens with the eventual increase in their circulating supplies. Another drawback is that fully diluted market caps make the assumption that the future market cap will increase in direct proportion to their current circulating supply at any point in time. Of course, this is not always the case, as in theory, as the supplies of tokens increase, they should push down the prices of the tokens due to oversupply, which causes inflation. Thus, when looking at fully diluted market caps, investors should be aware that the metric does not consider the impact of inflation on the fully diluted market capitalisation.
In Conclusion
Diluted market cap meaning is the measure of market caps when all the coins are issued. We hope that you understand it is one of the ways we can measure a cryptocurrency’s value and dominance in the market, so that we can make a more informed decision when it comes to investing in crypto. While high-cap cryptocurrencies like Bitcoin and ETHereum are considered to be more stable, they are still prone to price fluctuations due to the ever-changing sentiment of the crypto market.
