MARKET CAP & LIQUIDITY IN CRYPTO
Plain English
Market cap = price × circulating supply. A $1 coin with 1 billion supply has the same market cap as a $1,000 coin with 1 million supply. Low-cap coins move faster but are more dangerous. Liquidity determines how easily you can buy or sell without moving the price.
Going deeper
Crypto is often categorized by market cap: Large cap (BTC, ETH, $10B+) are more stable and liquid; Mid cap ($500M–$10B) offer growth potential with moderate risk; Small cap (<$500M) are highly volatile with potential for massive gains or total loss. 'Fully Diluted Valuation' (FDV) accounts for all tokens that will ever exist — a coin at $1B market cap but $10B FDV has 90% of supply not yet circulating, creating future sell pressure. Liquidity depth (the order book or liquidity pool size) determines slippage — how much your trade moves the price. A $100k buy in a $500M cap coin barely moves the price; the same buy in a $5M cap coin could move it 10%+.
Examples
Low Cap Trap
Token XYZ: price $0.50, circulating supply 10M = market cap $5M. But total supply is 1 billion. As vesting schedules release more tokens over 3 years, each release dilutes existing holders. The low price doesn't mean it's cheap.
Slippage Reality
You try to buy $50,000 of a low-liquidity altcoin. The liquidity pool only has $200k in it. Your trade causes 20% slippage — you intended to buy at $1.00 but average purchase price is $1.20. You're immediately down 17% before fees.