Understanding the significance of ''market cap''

Market cap is a measurement done by multiplying the number of available stocks with the price of a single stock. Market cap is such a metric that roughly shows the size and value of each cryptocurrency.

The market caps are determined by multiplying the price with the supply of a currency. The price is calculated by taking the volume weighed average of all prices reported on each market while the supply is the circulating one, representing the approximate number of coins that are currently circulating in the market and in the public’s hands. The circulating supply is instead of the total one as the total supply contains tokens that are locked, reserved and untradeable at the moment and are thus unable to affect the market price.

Market cap's significance can be understood with the Auroracoin example. This coin was Iceland’s attempt to create a national cryptocurrency that would break the shackles of fiat and help the people stand up to the politicians who contributed to the crash of the country’s financial system in 2008. The coin was supposed to be airdropped to the Iceland’s population, with each countryman receiving 31.8 Auroracoin tokens.

Before the distribution, speculators used the predicted supply numbers to inflate the token price up to 0.1698 BTC, or about $111 on March 3rd. As a result, the coin reached a predicted market cap of 1 billion dollars. On the day of air drop, the demise of the Auroracoin, as people who were airdropped the token started selling it off, mostly due to the fact that they had nowhere to actually spend it. The price fell to ground and the coin is now dead, after suffering multiple 51% attacks because miners abandoned it due to its price drop. The lesson learned here was that the market cap, the size of a currency, should be judged by what people trade.