Barely a day goes by that I do not encounter someone—somewhere on the internet—utter a sentence something along the lines of, "when token-x is worth as much as Bitcoin, I will be a billionaire", what this kind of utterance shows is that people simply do not understand market cap, what it means, and why it is relevant to where a token price is likely to head in the short to mid-term.
What is market cap?
Market cap, short for market capitalization, describes the total value of all the coins of a given token that are currently in circulation. Simply put if our token, has 100,000,000 tokens in circulation and has a value of $2.46 then the market cap is calculated as follows-
Current Price x Circulating Supply = Market Cap
$2.56 x 100,000,000 = $256,000,000
You will also see references to 'Fully Diluted Market Cap (FDMC)' which is a way of calculating what the current value of the token would be if all of its total maximum supply was in circulation. If our token has a maximum supply of 100,000,000,000 then-
Current Price x Maximum Supply = Fully Diluted Market Cap
$2.56 x 100,000,000,000 = $256,000,000,000
If we consider these two in tandem and look at some real life examples we will see why it is absurd to think ADA, could have a token value matching BTC
BTC has a market cap of $881,340,788,292
BTC has a circulating supply of 18,797,850
BTC has a maximum supply of 21,000,000
BTC has an FDMC of $993,499,953,038
ADA is currently valued at $2.60
ADA has a maximum supply of 45,000,000,000
Cardano has an FDMC of $117,319,514,222
What we can see here is even if Cardano's market cap was to match Bitcoin's we would still only see a token value of around $22—of course both tokens are likely to increase in value long before they reach full dilution and ADA is a very long way off being fully diluted, but the fundamental truth is that ADA, by design, is never going to obtain a token value in the same ballpark as Bitcoin.
Where a token has no maximum supply—is uncapped—as we find with many DeFi utility tokens, such as CAKE, then it is not possible to calculate a FDMC and ultiately the token would be inflationary, long term, if there is not some mechanism to prevent this. It must be noted—and is a subject I will cover in the future—that in many way Total Value Locked (TVL) is more important than market cap when discussing DeFi tokens.
Lots of new investors are attracted by the idea of owning lots of a given token, I believe this largely stems from an ignorance of what market cap is and failure to understand that a token's growth potential is effectively restrained. The new investor thinks that if they hold a billion Baby Doge Moon Shark tokens then if it even reaches $1 they will be the next Bezos. This mentality, coupled with a belief that crypto is 'magic money, are the weaknesses that make these investors fall for meme token ponzi and rugpull scams in the first place.
Just remember it does not matter if you own only 0.0001 of one token versus 56700 of another if the total value is the same. What matters is choosing a project with good fundamentals, potential for growth, use case, and a strong community and development team.
Of course all of this is a simplified assessment of market cap and there are additional complicated variables which can come into play—such as reducing maximum supply through token burning—however, you can still approximate future potential value and you'd have to be hyper bullish on a project to chose to use Bitcoin's market cap as your point of comparison.