Market capitalization, or “market cap” for short, is an essential component of the financial industry, particularly in crypto marketplaces. Before investing in a coin, the majority of traders examine its crypto market cap. This can then indicate the optimal time to sell, purchase, or even HODL.
In November of last year, the crypto market cap surpassed $3 trillion at its high. However, much has transpired since then, and the crypto market cap has decreased by double digits. According to CoinMarketCap, the global crypto market cap is 819.57 billion dollars. How do these analysts obtain the actual numbers, and how does this influence the financial market as a whole?
What is the crypto market cap?
Crypto market cap is the total value of a cryptocurrency. The crypto market cap allows you to compare the worth of one cryptocurrency to another, enabling you to make better-informed investment decisions. Cryptocurrencies are classified by their market cap into three categories:
Large-cap cryptocurrencies, including Bitcoin and Ethereum, have a market cap of more than $10 billion. Investors view them as lower-risk investments since they have a track record of growth and frequently have greater liquidity. This indicates that they can sustain a greater number of people cashing out without the price being significantly affected.
Mid-cap coins have a crypto market cap between $1 billion and $10 billion. In general, they are viewed as having greater unrealized upside potential but also greater risk.
Small-cap digital assets have a crypto market valuation of less than $1 billion and are most subject to extreme market sentiment-driven price fluctuations.
Market capitalization is a useful indicator for comparing the worth of all cryptocurrencies. However, market trends, a cryptocurrency’s stability, and your own financial status must be taken into account when considering the dangers associated with any investment.
Crypto market cap calculation index
Whereas stock market capitalization is computed by multiplying share price by the number of outstanding shares, the crypto market cap is computed by multiplying the cryptocurrency’s price by the number of coins in circulation.
To better comprehend this technique, let’s use Bitcoin, the most popular coin in the world, as an illustration (BTC). Multiplying Bitcoin’s current price by the number of coins in circulation yields its market capitalization. As one bitcoin is currently worth $16,245 and there are 19 million in circulation, the market capitalization is:
$16,245 x 19,217,250= $311 billion. Crypto market cap = circulating supply x unit price
As frequently as Bitcoin’s price fluctuates, so too does its market capitalization. How does Ethereum compare to Bitcoin in terms of market capitalization? Ethereum’s market capitalization is approximately $146 billion at its current price of $1,217 and circulation of 120.25 million coins.
Even if there are far more Ethereum tokens in circulation, Bitcoin’s worth increases its market cap. There is much to consider besides market capitalization. To comprehend the crypto market cap’s applications and effects on investors, we must delve a bit deeper.
What does the crypto market cap mean for investors?
A company’s market capitalization determines its investing category on the stock market: small-cap, mid-cap, or large-cap. There are various reasons an investor would classify their investments into these categories. Consequently, understanding the crypto market cap is essential.
If you are interested in a token’s scope or potential, it could be useful to be aware of its market capitalization. However, it should not play as large a role in your financial selections as it could in the stock market.
Market capitalization gives investors a great deal of information about every cryptocurrency on the market. It reveals how the world perceives a specific cryptocurrency and its dominance relative to its rivals. Market cap fluctuates coinciding with the price and global circulation of cryptocurrencies and tokens.
Market capitalization can also indicate market patterns and trends. For example, if the price of a cryptocurrency connected with NFTs (non-fungible tokens) begins to fluctuate, it indicates that the cryptocurrency is drawing or losing investors.
Before investing in cryptocurrencies, investors should always conduct extensive research and examine all relevant facts. For example, the crypto market cap as a statistic does not provide anything about the actual trading volume over the last couple of hours.
Before investing, it is prudent to check Coinmarketcap or other analytical platforms for the 24-hour trading volume of a cryptocurrency on several exchanges over a suitable amount of time, as well as other vital factors.
It’s also vital to understand that market capitalization is always changing because crypto values vary so dramatically. This volatility, along with the possibility of a complete market collapse, is another reason why experts recommend keeping your investments extremely limited and only investing what you’re prepared to lose.