In 2009, when Bitcoin (BTC) appeared as the first cryptocurrency in the world, with its own blockchain network, the financial market wasn’t interested in the digital asset at all. People who were engaged in mining BTC, buying the crypto, and using it for transactions were mainly tech geeks and crypto enthusiasts who believed that cryptocurrencies have a future and that they would one day be a real alternative to fiat money.
Years later, there are thousands of cryptocurrencies available, the value of Bitcoin has skyrocketed, numerous cryptos have their own blockchains, and digital assets are used in countless ways. Cryptos like Ethereum (ETH), NEO, Bitcoin Cash (BCH), Ripple (XRP), Litecoin (LTC), and other altcoins are used to facilitate fast and reliable money transfers, international payments with much lower fees than banks, smart contracts, and the development of decentralized applications.
The cryptocurrency market has literally exploded in terms of total number of coins and crypto tokens, as well as in trading volume. This is where market capitalization comes in as a way of measuring how big the currency and the whole market is. Let’s take a look at what market cap means in terms of cryptocurrencies and how it works.
What’s Market Capitalization?
Market capitalization is a term commonly used on the stock market for defining the value of a company’s stocks and showing you the share price of that company. In the world of digital assets, cryptocurrency market cap is a method of measuring how big a certain currency is, i.e. the value of a cryptocurrency, in order to decide how and when to invest your funds.
It is important to know how to decide which of the thousands of cryptos are worth a straightforward investment and which aren’t worth your money, at least for now. Of course, the volatility of the crypto market is high and it makes predictions relatively impossible, except if you get to know the market really well and learn to read the signs for price surges and drops in advance.
It’s widely considered that the higher the market cap of a certain crypto, the more important it is on the market. Crypto brokers, traders, and investors mostly regard a digital currency’s market capitalization as the single most important parameter for deciding whether to invest in that particular coin.
For years now, there have been crypto market cap companies whose line of work is to provide people with an accurate overview of the market cap of different cryptos. CoinMarketCap is one of the first, most popular, and most reliable market cap monitoring platforms on the web. They provide a detailed overview of the market cap of over 4,700 cryptocurrencies. The platform shows not only the market cap of every asset, but also the asset’s current price, the price fluctuation during the last 7 days or 24 hours, along with the trading volume and circulating supply.
Market Cap as an Indicator for Investments
Monitoring the market cap of a given coin is a good way to see the long term popularity and future potential of that currency. If a coin has a considerable market cap with a stable past, then there is a high chance this coin is a good investment at the moment. This doesn’t mean that the particular coin will always be a good opportunity to invest in. Different events on the crypto market and surges in price of popular currencies can cause other assets to fluctuate in price as well, creating volatile periods when a once relatively stable coin starts to lose in value.
If you see a crypto on a downward path regarding its market cap, trading volume, and price, this also doesn’t mean that the currency will stay like that. You need to carefully monitor the situation of the cryptos you are interested in, in order to notice the appropriate moment for investing. For example, when the trading volume and price of a crypto starts rising, you can get in on the action and acquire assets that could potentially make you some profit.
The market cap does offer valuable insights regarding the market performance and status of a digital currency, but you should pay attention not to mix up market cap with cash flow, which is a common mistake for beginners. To calculate the market cap, you simply have to multiply the price of a coin with the total number of coins in circulation on the market.
How to Calculate the Market Cap of Cryptocurrencies Like Bitcoin
The process of calculating the market cap of a cryptocurrency is fairly simple. Don’t look at the total supply, you need the circulating supply. Multiplying the current price with the number of coins in circulation is a simple mathematical task. If a crypto coin has a 1,000 USD market price and there are one million coins in circulation, then the market cap is one billion USD.
Things can get a bit complicated in practice when you want to calculate the market cap of an asset because you first need to know the currency’s price. There are hundreds of crypto exchange platforms which all modify the price of specific assets according to the trading volume of the asset on their site. This means that a crypto like Bitcoin can have hundreds of different prices, depending on the exchange platform. These prices can be very different, varying from a couple of dollars to a couple of hundreds of dollars difference per coin on two separate exchanges.
This is why market cap companies like CoinMarketCap draw their data from numerous exchanges across the web, to provide people with up-to-date information that is as accurate as possible. They draw their prices calculating the average amounts from numerous exchanges, so people can have a realistic picture of the crypto market cap.
Total Cryptocurrency Market Cap
Apart from the market cap of a single cryptocurrency, there is also the total market cap, which is derived from a broad range of digital currencies and their caps. Bitcoin and Ethereum, as the two most popular and most traded cryptos, account for over 50% of the total market cap.
Small Cap Cryptos
Cryptocurrencies with small market caps are very often quite volatile and are generally regarded as a risky investment. If you are willing to take the risk however, such cryptos could bring you short-term profits. The thing is that these cryptos can change fast, so it’s a good idea to be careful and not invest money that you aren’t prepared to lose.
Large Cap Cryptos
Large cap cryptocurrencies like Bitcoin and Ethereum are considered a relatively safe investment without a high possibility of crashing. If you want to invest large sums of fiat money in crypto and make a profit, then investing in large cap cryptos is a great choice. Every digital currency with a market cap of more than 10 million USD is considered a large cap crypto.
A Few Words Before You Go…
Market capitalization is an important factor in the crypto world when deciding on investing your money in a currency. It isn’t enough to just hear or read a couple of promising stories and explanations about how a certain crypto works and what it can potentially become. You need hard facts before investing your money and market capitalization is a way to do exactly that.