I see this mistake made all too often when people are looking at a CryptoCurrency they want to invest in: they look at the market cap of the coin and they make a comment like "well, a distributed storage company can't possibly be worth $400 million, so clearly this coin is over-hyped."

Friends, stop doing this. Stop saying this.

User grider123 posted a nice little piece about how market cap is not that important. I thought I would expand on that idea a bit more here.

Market Cap of a CryptoCoin =/= The Business/Organization's Value

The biggest reason you should not look at it this way is because purchasing a coin does not entitle you to any share whatsoever of the underlying business. This is especially important to keep in mind when you're buying into an Initial Coin Offering. There can indeed be a correlation between the coin market cap and how much revenue the business is generating, but only to the extent that there is a defined relationship between the business revenue and the coin itself. Are customers going to be expected to purchase and use the coin in order to use the service? Is the business planning to use their revenue to purchase coins and burn them in order to decrease the supply?

Example A: BitCoin, with a $42 Billion Market Cap

I assure you, the underlying blockchain technology that BitCoin is built on is not worth $42 billion. In fact, the technology is considered dated and has been improved on many times over with other coins. Many would argue the Ethereum platform would be orders of magnitude more valuable than the technology used on the BitCoin blockchain. Further, BitCoin isn't even actually itself, a business.

BitCoin has value due to supply and demand. It is in demand as a legitimate currency and it has a limited supply which has driven the price up as high as $2,900/BTC. It's market cap isn't really helpful in telling you whether or not you should buy it.

Example B: GridCoin, with a $23 million Market Cap

I love using GridCoin as an example because (disclaimer alert), it is my largest holding and it is also the only coin I am currently mining (even though I'm a BOINCer, not a Miner). Just like BitCoin, though, there's no core "business" to even valuate. There's no revenue now, and there's no intention of creating revenue in the future. Like BitCoin, it's a currency and it should be valued based on how many people are mining and trading it.

Example C: SiaCoin, with a $380 million Market Cap

Here's an example of when you should keep market cap in mind: SiaCoin. At ~$0.015 per coin, it would be easy for a new investor to think "wow, I'm really getting in at the ground floor on this coin" and have aspirations of SiaCoin one day being worth $100/coin like we've seen Ethereum do. Unfortunately, SiaCoin is already at a $380 million market cap because there are over 27 billion coins in circulation. This means that if SiaCoin were to get to $100/coin it would have a $2.7 Trillion market cap. Knowing that every CryptoCurrency in existence right now adds up to only about $100 billion in market cap should at least allow you to temper your expectations of what SiaCoin could one day be valued. It could be a great coin, but I wouldn't invest in it with the idea that it will be at $100/coin one day.

What's the bottom line?

Just do your research about a coin and consider decoupling it's coin market cap from what you believe the business should be worth. For some coins, they have built-in policies that may allow for a strong correlation between the two, but I would argue for most coins the market cap potential could end up being multiple times what the core business would ever be worth.