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What does Market cap in cryptocurrency mean? Market cap in crypto is the entire market value of cryptocurrencies calculated by the crypto market capitalization. It is determined by taking a cryptocurrency's total circulated stock and multiplying it by its current price.
The Market Cap is very essential for traders to figure out the total worth and importance of a specific digital asset. To make wise investment decisions, traders frequently use market capitalization to evaluate the size and significance of a cryptocurrency.
In this article, we'll explain the market cap of cryptocurrency, explain its meaning to crypto traders, discuss its importance in the industry, and show you how to calculate it. Let's get started.
What does total Market Cap mean?
The total market cap provides a more comprehensive, up-to-date view of the state of the crypto asset industry, using market data from various cryptocurrencies, such as Bitcoin, Ethereum, XRP, and EOS.
In particular, with altcoins, the total supply is crucial to monitor. There are restrictions on the amount of cryptocurrency that can be in circulation, such as Bitcoin; there can never be more than 21 million coins in total. Some possess a lot more coins than others, such as XRP, which has a supply of 1 billion coins.
Coins having a higher total supply typically have lower prices. A cryptocurrency's value can be affected by shortage in addition to the value of its blockchain technology. For example, the all-time high for Bitcoin is $20,000, and the record for Ripple is only $3.84.
How Market Cap is calculated?
Calculating the market cap of cryptocurrency is quite easy.
“Market Cap = Current Price of a crypto x Circulating Supply”
A cryptocurrency's current price is multiplied by the total amount that is in circulation. A few cryptocurrency exchanges offer the current price, and reputable data suppliers or the project website are typically the places to find out the entire supply in circulation.
For example, if Bitcoin's value is $50,000 now and there are 20 million of them in circulation, then its market capitalization is almost more than $1 trillion.
Due to the possibility of minor price differences for the same cryptocurrency across exchanges, the market cap can fluctuate depending on the data source. Furthermore, a maximum supply cap on particular currencies ensures that the overall amount in circulation will not grow over time.
Market Caps for Top Cryptocurrencies
|
Coin |
Price |
Market cap |
Circulating Supply |
|
Bitcoin (BTC) |
$59.41K |
$1.17T |
19,742,809 |
|
Ethereum (ETH) |
$2.59K |
$311.69B |
120,291,370 |
|
Tether (USDT) |
$1.00 |
$117.30B |
117,294,453,953 |
|
BNB (BNB) |
$563.69 |
$82.18B |
145,935,938 |
|
Solana (SOL) |
$142.68 |
$66.57B |
466,431,818 |
|
USDC (USDC) |
$1.00 |
$34.78B |
34,815,003,234 |
|
XRP (XRP) |
$0.60 |
$33.39B |
56,113,081,096 |
Why is Market Cap Important?
Price is only one metric used to determine a cryptocurrency's worth. Using market capitalization, investors may compare the worth of different cryptocurrencies and provide a more detailed analysis. In comparison to other cryptocurrencies, it can serve as a crucial metric that reveals a cryptocurrency's future prospects and safety of purchase.
- Market capitalization can measure a cryptocurrency's liquidity, such as how easily a token can be exchanged for other cryptocurrencies or dollars.
- With a greater market capitalization, cryptocurrency is frequently more liquid and has more trading volume, which promotes buying and selling via wallets, exchanges, and on- and off-ramps.
Let's compare the market capitalization of two imaginary cryptocurrencies to clarify.
- If there are 400,000 coins in circulating supply, Cryptocurrency A has a $400,000,000 market capitalization, with each coin valued at $1.
- Cryptocurrency B's market capitalization is $200,000 if there are 100,000 coins circulating supply, each valued at $2.
- Cryptocurrency B has a greater individual coin price than Cryptocurrency A, but its total worth is double that of Cryptocurrency A.
How does Market Cap affect the crypto price?
Many factors might cause a market cap to fluctuate over time. Anyone trying to make wise investing selections needs to be aware of these:
Total Supply vs Circulating Supply:
The quantity of coins currently in service and accessible for trade is known as the "circulating supply." It does not include coins that are secured in smart contracts, controlled by the project's creators, or unavailable in any other way.
The entire stock of cryptocurrency tokens, which includes coins that are not in general circulation, is the most quantity that will ever be produced or exist on the blockchain.
Price per Token:
The current market value of one unit of the cryptocurrency in your preferred currency, such as USD or EUR, affects the price per cryptocurrency token. Price changes have a big effect on a cryptocurrency's market capitalization since even tiny changes in token price can have an important impact.
Trading Volume:
The trading volume represents the entire quantity of cryptocurrency traded during 24 hours. Larger-cap cryptocurrencies are frequently linked to high trading volume, which signifies a lively and liquid market. On the other hand, it could be difficult for a cryptocurrency with little trading activity to keep its market cap constant.
Market Sentiment:
Positive developments and large organizations' recognition of a cryptocurrency may impact the market state and increase demand for a specific coin. A bigger market capitalization may result from these higher prices put on by the increased demand.
It's crucial to keep a close eye on information and sentiment in the cryptocurrency market before investing.
Economic Factors:
The market cap of a cryptocurrency may also be impacted by the state of the overall economy. The market cap of a cryptocurrency will often increase in an economy that is strong, but a struggling economy may result in a decrease in market capitalization.
How do Investors use Market Cap to make decisions?
Investors frequently use the market cap as an entry point to evaluate cryptocurrencies, but how they apply it depends mainly on their risk tolerance and investing objectives.
The following are some ways that market cap may affect their decision-making process:
Growth chance:
Smaller-cap cryptocurrencies are usually thought to have more chances for growth. An investor looking for high-risk, high-reward options with the intention of earning high returns may focus on smaller-cap cryptocurrencies.
Risk Evaluation:
Market cap is useful for investors to estimate the risk associated with a cryptocurrency investment. Larger-cap cryptocurrencies can be considered more stable due to their popularity and verified success.
Expanding:
Investors can freely share their money among many cryptocurrency-sized categories, such as large market caps, mid-caps, and small-caps, to move risk throughout their portfolio.
Is Market cap the most accurate way to determine Crypto value?
Though the idea underlying this is sometimes challenged, a project's market capitalization is still thought to be the most significant measure of value. The theory is that a cryptocurrency's market cap is roughly equal to its level of long-term popularity.
Large-cap cryptocurrency:
Large-cap cryptocurrencies are seen as secure investment options. These businesses have a market capitalization of above $10 billion. Investing in coins with a high market capitalization is a smart move. These coins have a higher volatility than traditional investments like equities, but possibly not as much as other cryptocurrencies.
Mid-cap cryptocurrency:
Compared to large-cap cryptocurrencies, mid-cap cryptocurrencies have much more growth potential but are much riskier.
Small-cap cryptocurrency:
Small-cap cryptocurrencies can have a lot of potential for short-term growth. However, they are frequently quite volatile and considered highly risky investments. Be warned that they could crash literally any minute now.
Myths about the Market Cap of cryptocurrency
There is a lot of fake news about Market Cap in the cryptocurrency industry.
Myth: One is that a cryptocurrency's market capitalization shows how much money is invested in it.
Fact: A cryptocurrency's market cap is just an estimation of its overall value, determined by its price and supply in circulation.
Myth: Another myth is that a cryptocurrency's market capitalization is the only factor that can decide how much higher it can rise.
Fact: Market cap can reveal a cryptocurrency's size and importance, but it cannot ensure continued success or progress.
In addition, speculative trading, popularity, and market manipulation can all impact market cap. These elements have the potential to unfairly increase or decrease an asset's market capitalization, so it is crucial for traders to do deep study and analysis before making decisions.
