Defining Market Capitalization

Market capitalization should be a familiar term to those financially-minded as it is an indicator that measures and keeps track of the market value of cryptocurrency. Market capitalization is sometimes referred to as a market cap. For a cryptocurrency like Bitcoin, the market cap is the total value of all coins that have been mined. It is calculated by multiplying the number of coins in circulation by the current price of a single coin.

The Importance of Market Capitalization in Crypto

It is important to note that a market cap does not prevent market volatility. A cryptocurrency with a much larger market cap is more likely to be a more stable investment than one with a small market cap. Investors use the market cap to tell a complete story and compare value across cryptocurrencies. Price is just one way to measure a cryptocurrency’s value. Market cap is also used as an indicator of the dominance and popularity of cryptocurrencies compared to others. For this reason, the market cap is often regarded as the most critical indicator for ranking cryptocurrencies as a key statistic. Though this metric is widely used, it is essential to note that many cryptocurrencies’ market caps can swing dramatically due to market volatility.

What is a market cap based on, and what affects it?

Two main factors can impact market cap: significant changes in the price of a stock, a coin, or when a company issues or repurchases a share. Market cap is based on the aggregate market value of a company represented in a dollar amount. Since it represents the market value of a cryptocurrency, it is computed based on the current market price of its coin and the total number of coins in circulation.

Does market cap matter in crypto?

The answer to that question is ‘yes’ because coin prices directly depend on market capitalization levels, which is a crucial factor. This means that a relatively small change in price (due to demand fluctuations) may affect the coin’s market cap significantly, depending on the number of coins circulating in the market.

How does market capitalization affect you?

The market cap allows you to compare the total value of one cryptocurrency with another so that you can make more informed investment decisions. It is also seen as the most crucial indicator of relevancy because the market cap of a cryptocurrency more or less reflects the popularity of a coin over a longer period. Cryptocurrencies are classified by their market cap into three categories: Large-cap, Mid-cap and Small-cap.

1. Large-cap cryptocurrencies have a market cap of more than $10 billion. They are considered lower-risk investments because they have demonstrated a track record of growth and often have higher liquidity – meaning they can withstand a higher volume of people cashing out without the price being dramatically impacted.
2. Mid-cap cryptocurrencies have market caps between $1 billion and $10 billion. They are more volatile but also have much more growth potential than larger-cap.
3. Small-cap cryptocurrencies have a market cap of less than $1 billion and are considered a precarious investment. They are considered speculative, new, and less reliable cryptocurrencies for crypto investors.

What does it mean when crypto has 0 max supply?

Having a zero max supply means they can be mined or minted continuously. Some cryptocurrencies do not have a predefined maximum supply. Ethereum is a notable example of a cryptocurrency system with no predetermined maximum supply. 

How to calculate market cap

The market cap of a cryptocurrency is determined by the current price multiplied by the circulating supply. Market capitalization is the gross total of all cryptocurrency assets, such as Bitcoin, Ethereum, altcoins, digital tokens, stablecoins, and other major/minor crypto assets.

Market cap = price (X times) circulating supply 

For instance, Bitcoin’s circulating supply is 19,163,756.00 BTC, and its current price is $348 900. 78

If something is part of the crypto industry, its market value will contribute to the total crypto market capitalization.

19,163,756.00* 348 900, 78 = $66, 862, 494, 161, 297

Please note that the market cap will not be the same as the one above because the market price keeps changing every second, and the market cap also fluctuates accordingly. The cryptocurrency market is volatile, so prices and market caps will not be the same when reading this article. Coinmarketcap is currently one of the best websites to keep track of market cap. 

What happens if the market cap is zero?

A stock price can never go below zero, but we all know that’s the opposite when considering the cryptocurrency world. While the network itself could remain intact, such a drop would still cause monumental financial losses for millions of individuals worldwide. There would be no way to sell the cryptocurrency back to exchanges, as they would have outstanding debts and be legally required to de-list from trading.

Bitcoin Prime recommend that one does thorough research before investing and considers all vital factors involved. Market cap is a valuable metric for comparing the total value of cryptocurrencies, but market trends, a crypto’s stability, and your financial situation all need to be considered.