What market capitalisation measures

Market capitalisation is a hypothetical quantity. It is the amount of money that would change hands if every bitcoin were sold at the current price, which is not a transaction that could occur. The price at any moment reflects the last trade, which may have been for a fraction of a coin. Multiplying that price by the entire supply produces a number that describes the market's implied valuation rather than the capital actually committed to it.

The gap between the two is largest for assets with a small float or a thin order book. If most of the supply is held and never traded, the price is set by a small fraction of the coins, and the capitalisation figure is correspondingly less meaningful. Bitcoin's supply is widely distributed by the standards of a young asset, but a substantial share has not moved in years, so the caveat applies to it as well. The figure is useful for comparing assets of similar liquidity and misleading when used to compare assets of very different liquidity.

The measure is also sensitive to the supply estimate. Because the circulating supply is derived from the issuance schedule rather than counted, and because lost coins are included, the denominator of the calculation is an approximation. The error is small relative to the price movements that dominate the figure, but it is worth knowing that the capitalisation is not a precisely measured quantity. The supply schedule page documents how the supply is determined, and the dominance page shows what happens when the same measure is applied across the whole market.