Market capitalization, sometimes known as “market cap” for its abbreviated form, is an essential component of the world of finance, particularly in the markets for cryptocurrencies. Most investors begin their cryptocurrency trading careers by researching the market capitalization of various coins. This may then inform you of the appropriate time to sell, purchase, or even HODL (hold on to for dear life).
Now that we are aware of how significant it is, let’s first discuss what a cryptocurrency market cap is. Then we’ll talk about how it pertains to cryptocurrencies, and finally, we’ll go through the various sorts of capitalizations.
What really is the Market Cap?
The worth of an asset is determined by its market capitalization, sometimes referred to as a “market cap”, or just a ” crypto market cap.” The quick answer is that it reveals how much money an asset is now worth. A variety of digital assets, such as equities and cryptocurrencies, are included in the calculations that make up market capitalization.
When talking about stocks, market capitalization is a measurement of the worth of securities in comparison to other securities. In most cases, it is determined by multiplying the total number of shares that are currently in circulation by the price per share that is currently in effect.
The term “outstanding shares” is used to refer to the shares of a corporation that are owned by investors and other non-corporate entities. The value of a digital asset in comparison to the value of other assets is assessed and characterized by the market cap of the digital asset.
Market Cap Calculator
Here’s how to determine the market cap after you know what it is!
*Market cap = supply x unit price*
Multiplying the circulating supply by the token or coin price calculates an asset’s market cap. Each component is briefly described below.
The market capitalization of an asset may be determined by multiplying the total supply that is now in circulation by the value of the tokens or coins that are currently in circulation, as shown by the equation. Presented below is a concise summary of each component.
“Supply in circulation” refers to the total number of coins that are accessible for exchange.
Unit pricing is defined as the price at which one unit of an asset may be purchased.
Consider the cryptocurrency known as Bitcoin (BTC), for instance.
The total amount of Bitcoins that are now in circulation is roughly 19 million BTC, and the price of one Bitcoin is currently hovering around 27,000 USD.
As a result, we may compute the value of Bitcoin’s market capitalization by multiplying 19 million by 27,000. This therefore reveals to us that the total value of the Bitcoin market cap is 513 billion.
If you would rather save the effort, visit an online market cap calculator. This is another option available to you.
Market Capitalization Classifications in Cryptocurrency
Market capitalization is used to categorize the value of different assets on the bitcoin market into four categories. You will be able to make better-investing selections if you can compare the overall worth of bitcoin to that of other cryptocurrencies using these categories.
A large-cap cryptocurrency is one that has a large market capitalization and is often regarded to be a good investment in the cryptocurrency market. If a cryptocurrency’s market capitalization exceeds $10 billion, it is referred to as “large-cap.” More investors are drawn to large-cap cryptocurrencies because they offer a greater level of liquidity. A wide range of digital asset trading platforms will have these assets available. Bitcoin and Ethereum are covered in this category of cryptocurrencies (ETH).
One to 10 billion dollars in market value are considered mid-cap cryptocurrencies. In general, mid-cap currencies are seen as having untapped profit potential, but they also carry a greater level of risk. Mid-cap cryptocurrencies, on the whole, have a decent long-term track record. Mid-cap currencies might broaden your portfolio’s diversity. Mid-cap coins, on the other hand, are not all capable of becoming large-cap assets. Litecoin, Cardano, and Monero are all examples of mid-cap currencies.
Small-cap cryptocurrency coins and tokens have a market capitalization between $100 million and $1 billion. Even while these currencies have the potential to increase in the near term, they are volatile and considered high-risk investments. Dogecoin is a currency that falls under this category.
In comparison to currencies in the small-cap category, micro-cap assets are seen to have greater risks. As a rule of thumb, cryptocurrencies that fall under this category are new coins that have a market value of less than $50 million USD.
For Investors, what does Market Capitalization mean?
You may classify a firm into one of three investing categories: small-cap, mid-cap, or large-cap. Market capitalization is essential for a variety of reasons, not the least of which is that an investor may decide to split their investment into various categories. Market capitalization is commonly used to describe how hazardous an investment in a certain firm is. However, despite their slower growth, large-cap equities are less risky than their smaller counterparts.
To be sure, cryptocurrency is a relatively new concept. It’s so new that these kinds of categories haven’t been developed yet. The usage of market cap in making investment choices is less necessary now that experts recommend sticking to Bitcoin and Ethereum and not allowing crypto to account for more than 5% of your whole portfolio.
To understand the breadth and potential of a particular token, knowing the cryptocurrency market cap may be useful, but it should not play as large a role in your investment choices as it does in the stock market. One expert on cryptocurrency investing says it’s crucial to know that it’s different from the stock market.
You may use a weighted market cap technique to invest depending on the market value of each asset. Bitcoin and Ethereum’s total market capitalizations are divided by the proportion each individual crypto owns in that total: 71 percent for Bitcoin and only 29 percent for Ethereum.
The Bottom Line
A measure of the popularity and dominance of a cryptocurrency is its market capitalization. Although this statistic is commonly utilized, it is important to gather additional information before making a trade choice. A company’s market cap is often used to estimate its size and then compare its financial performance to that of other firms of similar size.
As an investor, you may find that market capitalization is an important metric to keep an eye on. The value of a publicly listed firm may be quickly and easily estimated using a cryptocurrency market cap, which extrapolates what the market believes it is worth. When it comes to determining a company’s size, investors rely on this metric instead of revenue or total assets. The market capitalization of a takeover candidate is used to judge whether it is a suitable investment for the buyer.