Key Takeaways
- Market Capitalization, also known as Market Cap, is a metric used to calculate the total net worth of a cryptocurrency in circulation.
- The coins that have a high market cap are the ones that can offer you higher stability when compared to other low-cap coins.
- As of now, the global crypto market capitalization is standing tall at $3.45 Trillion registering a downtrend of 5.28% in the past 24 hours.
In the crypto world, market capitalization is one of the most important things that determine the success of a project. It is the simplest and easiest way to determine the net worth of a company. Investors can then use this information to decide whether to invest in that particular company or not. In this article, we will look into what exactly the market cap is, how it is calculated, and why it is so important to know the market capitalization of a company.
What Is Market Capitalization?
Market Capitalization, also known as Market Cap, is a metric used to calculate the total value of a company’s stocks. In the case of cryptocurrencies like BTC and ETH, this value represents the net worth of all the coins that have been mined. It helps investors understand how a particular project is fairing in the market.
The market capitalization is a key indicator that is used to determine the ranking of a cryptocurrency in the market. The larger the market cap of a coin, the lower the risk associated with investing in it, and vice versa. A rising market cap signals bullish momentum in the market while a falling one is a clear indicator of the bearish trend.
How Do You Calculate The Market Cap Of A Crypto Coin?
Market cap estimates a project’s value by calculating what the market thinks it is worth by multiplying the price of a coin by the number of coins in circulation. After a coin is listed on an exchange, its market value is determined by two main things: supply and demand. As this market value goes up, the market cap becomes a real-time estimate of the coin’s value.
Market Cap = Current Market Value Of A Coin * Total Number Of Coins In Circulation
Suppose a newly launched coin has a market value of $100 and its circulating supply is 20M, then the market cap of the coin will be $2 billion. For another coin, say the market value is $1000 but has a limited circulating supply of 10K, then its market cap will be around $10 million.
Importance Of Crypto Market Cap
The market cap of a cryptocurrency is a very important factor as it is a metric that can tell how much stability a coin can offer. Also, it can also depict how the coin is currently trending in the market. If you’re invested in crypto coins for the long haul, then the ones with a large market cap are always the best choice because of their increased popularity and potential for long-term growth.
The coins that have a high market cap are the ones that can withstand a lot of people cashing out when they achieve their peak. This is mainly because the more there is, the less easy it is to manipulate them. In crypto, there are 3 types of coins based on market capitalization. They are:
- Large-Cap Cryptocurrencies: Coins that have a market cap of over $10 billion.
- Mid-Cap Cryptocurrencies: Coins having market capitalization ranging from $1 billion to $10 billion.
- Small-Cap Cryptocurrencies: Coins whose market capitalization falls under $1 billion.
Common Misconceptions About Market Capitalization
Even though most people know what market cap is exactly, there are also a number of misconceptions about it. Here, is a list of a few of them.
- Although market capitalization tells us about the state of a project, it does not measure its equity value.
- The market capitalization is a good indicator of the financial performance of a project. However, it does not mean that having a good market cap makes a project successful in the future.
- Another misconception about market cap is that it determines the price at which a project’s ownership can be acquired. Well, it doesn’t.
- The market cap of a project does not directly influence the price of a coin in the market. However, many investors and traders believe otherwise.
- Lastly, it is believed by many investors that the market cap is the same as the company’s value. However, that’s not the case. A company’s value takes into account many things like its current goodwill, the value of its debt or asset, and so on.
Current Crypto Market Cap
As of today, 12th December 2024, the current global crypto market is over $3.45T, which registers a 5.28% downtrend from the previous day. However, this marks a significant dip from the market capitalization of $3.7 trillion that was recorded yesterday, the 9th of December.
Even though the future of the crypto market is susceptible to extreme volatility, some financial experts are claiming that it will grow over 10 to 100 times in the coming years. As for the individual coins, the market cap offers an unprecedented and volatile future. The top 3 cryptos as of now in terms of market cap are
- Bitcoin ($1.91 trillion)
- Ethereum ($445.99 billion)
- Tether ($138.35 billion)
