A market cap or market capitalization is the total value of a cryptocurrency. This total value is calculated by multiplying the price of a coin by the total number of coins in circulation (circulating supply).
The price of a coin is determined from an average of several exchanges. This is because each exchange or broker has a slightly different price, often the differences are within a few percent, but in some cases, especially for low-volume coins (coins with little trade) it is a bit higher. This average price is then multiplied by the number of coins in circulation, which varies continuously because a coin's network issues new coins when mining.
Risk considerations are made based on market cap. Cryptocurrencies with a low market cap generally inspire less confidence than coins with a high market cap. Generally, market cap is classified into the following categories:
With low market capitalization, the price can be more easily influenced. This can encourage manipulation. This is one reason cryptocurrencies with a low market cap are less trusted. Another reason is that there is simply less interest in the currency. So investing in a coin with a low market cap can be riskier.
