What is the Market Cap?
Market Cap is the total value of a company/project’s share of stock, which is a significant metric to assess the worth of the project.
The Market Cap shows the project’s dominance, appeal, and worth. The market cap is used to evaluate whether a project is good or not to acquire. Bitcoin and Ethereum are two great examples of huge market caps that are market leaders.
Is market cap the best way to measure crypto popularity?
One popular factor traders use to check an investment project is market capitalization, along with other variables like market trends and market sentiment.
The market cap, in this case, is used to estimate a cryptocurrency project’s value and future development potential.
Cryptocurrencies are classified into three categories according to their market capitalization:
Large-cap cryptocurrencies
- The project has a market capitalization of over $10 billion. Large-market-cap coin investing is typically a cautious course of action. Despite being less erratic than some other cryptocurrencies, these coins are more erratic than conventional assets like equities. Bitcoin and Ethereum are two good examples.
Mid-cap cryptocurrencies
- The project has a market capitalization between $1 billion and $10 billion. Compared to large-cap, mid-cap cryptocurrencies are more volatile but offer more significant growth potential. Big names of this include Avalanche (AVAX), Uniswap (UNI), Chainlink (LINK), etc.
Small-cap cryptocurrencies
- The project has a market cap of less than $1 billion and are the most likely to move dramatically based on market sentiment. However, these initiatives can potentially give investors greater returns than large and mid-cap enterprises. But please remember that they can also collapse, sometimes practically every minute.
How to calculate a project’s market cap?
The market cap of a cryptocurrency is calculated by the current price multiplied by the circulating supply:
Market Cap = Price (X times) Circulating Supply
Market Cap Fomula
For examples:
Ethereum (ETH) is $1740.2, and there are 120,236,127 ETH in circulation.
Therefore, the market capitalization of Ethereum at the moment is 120,236,127 x $1740.2 = $209,234,908,205.
Is Crypto Market Capitalization an Important Metric?
There is considerable disagreement over how much weight should be given to the size of the Bitcoin market. Some detractors argue that it is an unpleasant legacy of the stock market, contributing to poor investing decisions and significant levels of anxiety and greed.
However, cryptocurrency market capitalizations can provide us with a fact-based view of how cryptocurrencies are performing – a much-needed source of impartiality away from social media.
Market Cap FAQ
- 1. What Effect Does Market Capitalization Have on Altcoins?
The market capitalization is the most basic measure of overall value. When alternative currencies have a high market cap, they are usually seen as more reliable – based on the assumption that more people have invested in that cryptocurrency – and when they have a low market cap, they are seen as speculative, new, and less reliable cryptocurrencies.
In terms of industry acceptance, altcoin market cap is a key metric to compare to Bitcoin. If it is lower than Bitcoin, it indicates that altcoins are receiving less attention and investment. Lower altcoin market capitalization also indicates less engagement on their respective platforms and applications. The opposite is also true.
- 2. Is a large market capitalization good or bad?
- A vast market cap benefits the particular coin but does not always benefit investors. Small market cap coins may have more room for growth than larger ones.
Meanwhile, Bitcoin is so crucial for cryptocurrency in general that anytime its total market cap reaches new all-time highs, it tends to drive up all altcoins.
- 3. Are coins with small market capitalizations risky?
- As a general rule, yes. However, when Amazon first went public, it was valued at less than $500 million cap, and Apple was valued at just over $100 million cap – thus, finding Small Market Cap (also known as smallcap) coins/companies can be a brilliant opportunity to get in early on the next big thing. This causes a lot of speculation in tiny caps, with most of them not hanging out, but then there are the long shots that become large caps or even mega caps like Amazon and Apple (Ethereum, Ripple).
- 4. Can Market Capitalizations Be Manipulated?
- Yes. Market capitalizations can be modified by altering coin prices. This is common with tiny cap coins with little active trading volume and circulating supply, making it simple for someone to influence the price up or down with a few thousand dollars.
Are coin market capitalization and stock market capitalization the same thing?
No. The recipe is the same, but that is the only thing in common. The stock market capitalization indicates the company’s equity value, or how much ownership is worth. This has far-reaching repercussions for attracting new business, credit, and operations. Coin market capitalizations do not reflect stock in the company because they are coins rather than shares, which means they have no legal tie to the corporation and are thus more like currencies.
- 5. What Other Important Factors Are There Aside From Crypto Market Capitalization?
- Aside from market capitalization, several more factors influence cryptocurrencies. Small-cap currencies tend to outperform their larger counterparts because they have more capacity to expand. Here are some metrics to consider when it comes to cryptocurrencies:
Price
This is a subset of Market Cap, but it has its own set of consequences. Lower-priced coins, such as Ripple, can fluctuate more in percentage terms than higher-priced coins, such as Bitcoin, because the dollar difference is much smaller, and investors interpret it differently.
Volume of Active Trading
As previously stated, lower pricing can make it more susceptible to manipulation, although this is also dependent on low active trading volume. The greater the volume, the more closely it reflects the coin’s’real’ value.
Max Supply and Circulating Supply
Circulating supply is the entire quantity of coins currently available to users, while Max Supply is the maximum amount of coins that will be available to users in the future. This is the well-known amount of 21 million for Bitcoin. These two factors are significant because if a currency has a low circulating supply relative to maximum supply (such as XRP, 44b compared to 100b peak supply), it becomes riskier for investors since this uncirculated supply can flood the market in the future and crash prices (such as XRP).
Volatility
This is a component of all of the preceding components. The greater the volatility, the less circulating supply, the lower the active trading volume, and the lower the price. Volatility can be beneficial or detrimental depending on your risk and return objectives.
In conclusion
Market Cap is a significant factor to asset a crypto project that you should not ignore. BTAGuru hopes you get a better understanding of Market Cap and the importance of Market Cap itself through this article.
