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Market cap is an essential element in determining which coins to invest your money in. Also, it gives an idea of how much a crypto company is worth.
While it is not the only factor in making a choice. But, beginners should always take a look at the crypto market cap because it can be a red flag.
Let’s learn more about crypto market capitalization and how it can help your cryptocurrency journey.
Defining Market Capitalization in Crypto
The total value of a certain cryptocurrency shows in its market capitalization or market cap. It reflects how many coins were already produced.
In Bitcoin’s case, it refers to the total supply of all mined btcs. Satoshi Nakamoto announced that its production limit is only 21 million btcs.
Therefore, market capitalization is analogous to a crypto company’s value. For this reason, it plays a major role in people’s investment decisions.
Crypto Market Cap Categories
Particularly, there are three kinds of market capitalization:
Large Cap Cryptocurrencies
The two prominent cryptocurrencies with large market caps are Bitcoin and Ethereum. Its value is more than 10 billion USD. A larger market cap means higher liquidity. These crypto assets are available in almost all trading platforms.
Mid-cap cryptocurrencies have the potential to become dominant digital assets. Their value is around 1-10 billion USD. They have the possibility for further development but are also high-risk.
Furthermore, they increase diversification in your portfolio because they have a higher possibility to perform excellently in the market.
The popular companies belonging to the mid-cap level are Monero, Cardano, and Litecoin.
These are crypto coins or tokens that are valued around 100 million to 1 billion USD. Small-cap cryptocurrencies are highly volatile. People invest in them because they believe that these cryptocurrency projects will grow bigger and better in the future.
Crypto Market Cap Calculation
One calculates the cryptocurrencies’ market cap by multiplying the price by the circulating supply. Circulating supply refers to the total number of coins in circulation or the publicly available cryptocurrencies that are available for buying and selling.
Cryptocurrency Market Capitalization = (circulating supply) x (price per unit)
To illustrate, Bitcoin’s market cap can be competed this way. As of December 8, 2022, one btc is $16,829.50. The circulating supply is at 19 million.
$16,829.50 x 19,125,843 = 321,878,374,768.50 or $321 billion.
The market cap of a cryptocurrency is an indicator of its stability and growth potential . Also, the higher the market cap, the more dominant the coin or token is in the market.
How Does it Help Investors?
Generally, investors better understand a crypto company’s overall status and future growth through the market capitalization.
Comparisons between one crypto with another helps investors decide which is a better investment choice. The market cap also helps in determining if the crypto coin or token is safe for the long-term.
By and large, it is a useful tool in assessing the value of a project and improves people’s confidence that they can grow their money by investing in it.
Cryptocurrencies with the Largest Market Cap
There is no doubt that Bitcoin takes the first place. First designed to become a peer-to-peer payment network, Bitcoin gradually evolved into a primary choice for crypto investments. Now, some think of it as digital gold.
Launched in 2015, Ethereum made a mark on people with their unique blockchain protocols that execute smart contracts. Because of smart contracts, developers can build decentralized apps (Dapps) on the Ethereum blockchain.
USDT is one of the most famous stablecoins. It always aims to maintain a value of $1. However, we all know the unpredictable movements of the crypto market, and there are times that it cannot keep the $1 value.
Tether has its own share of legal issues but it still remains as the biggest stablecoin with a high trading volume.
Binance is the brainchild of Changpeng Zhao and is now one of the prominent crypto exchanges. BNB is a popular utility token. Investors that use BNB receive discounts in their trading fees.
You can check the cryptocurrencies with the largest market cap by checking CoinMarketCap.
In conclusion, Market Capitalization reflects three core elements of a cryptocurrency as a feasible investment – its market value, dominance, and popularity.
The supply and price for a certain crypto asset affects market capitalization. If there is scarce supply, then its value increases.
Moreover, remember that the market cap reflects only a portion of the digital asset’s status. You need to know more about the asset by reading the whitepaper, learning its tokenomics and understanding its real-life applications.