What Is Market Cap in Cryptocurrency & How to Calculate It?

What Is Market Cap in Cryptocurrency & How to Calculate It?

When will the infamous “Shiba Inu” commemorative coin reach $1? It is currently trading at $0.0000129, and if it ever reaches $1, I would immediately earn 100,000 times my investment. Imagine buying $10 of cryptocurrency and turning it into a generational fortune. Can you believe it? Have you entered the cryptocurrency space with such a promise? If so, this article is for you. Today we are going to talk about the so-called market capitalization of cryptocurrencies.

Oh, the previous example? Well, if faggots ever reach $1, it will be five times the world’s GDP. Let that be perceived for a moment. Let’s move on. Many of us have been betrayed by similar stories about these dreams of wealth. But those who truly understand the capitalization of markets are unlikely to be taken aback. So why not join the ranks of the enlightened? Read on!

What Is Market Cap in Cryptocurrency?

Market capitalization is the total value of a cryptocurrency. It is obtained by multiplying the current price of a cryptocurrency by the total number of coins in circulation. For example, at the time of writing, the price of Bitcoin is $21,077 and 19.1 million Bitcoins have been mined. Multiplying these two figures results in a market cap of $403 billion. In the past, Bitcoin’s market capitalization has reached as high as $1T.

As the price and the number of tokens in circulation continue to change, the market capitalization also changes. Similarly, Ether has been trading at $1,668 since Sept. 6, with a total issue size of 122 million. Can you guess the market capitalization of Ether?

Based on market capitalization, cryptocurrencies can be divided into three categories. If you are an avid stock market investor, this should not be news to you. Let’s explore it.

Large-cap cryptocurrencies

Cryptocurrencies with a market capitalization greater than $10 billion are generally considered large-capitalization cryptocurrencies. Large-capitalization cryptocurrencies are generally less risky (within the crypto ecosystem) and tend to accumulate over time. When looking at stock market data, large-cap companies are generally considered conservative investments. This is because market capitalization reflects the size or total value of a company. Greater market capitalization means greater size and thus greater stability and security.

If we apply the basic risk/reward principle, we can assume that these cryptocurrencies have less growth potential because they have already grown significantly. Examples of cryptocurrencies with large amounts of capital are BTC, ETH, BNB, etc.

Mid-cap cryptocurrencies

Medium-sized cryptocurrencies are between $1 billion and $10 billion. They tend to be riskier than large-cap cryptocurrencies. That said, these cryptocurrencies tend to have greater growth potential. Some examples of mid-capitalization cryptocurrencies are MATIC, UNI, AVAX, and others.

Small-cap cryptocurrencies

As you might guess, these cryptocurrencies typically have a market capitalization of less than $1 billion. They are extremely volatile and dangerous and can be deactivated within minutes. Before investing in these cryptocurrencies, it is necessary to be very careful and do thorough research. Some examples of these cryptocurrencies are MKR, ZCash, Helium, etc.

How to Calculate Market Cap of Crypto?

The formula for calculating the market capitalization of each cryptocurrency remains the same. All you need to know is the outstanding supply and the current price. Multiplying these two elements gives the market capitalization.

Let’s take a simple example. Any stablecoin such as USDT or USDC will always mimic the price of the U.S. dollar. Therefore, the market capitalization will always be equal to.

USD = market cap of the stablecoin.

By this logic, USDT is equal to $62 billion and USDC is equal to $54 billion.

In another example, Coingecko calculated the market capitalization of the entire industry. This is done by adding up the market value of more than 12,000 individual tokens. Thus, on September 6, the market capitalization of the cryptocurrency sector was $106 million.

How to Calculate the Price of a Cryptocurrency?

Now that you know how to extract market value, let’s take it a step further by extracting price. Needless to say, the price formula is already in place.

The price of a cryptocurrency is given by the ratio of the total market value to the total number of tokens in circulation.

Isn’t that interesting? Let’s try using this technique to predict the price of Bitcoin.

The market capitalization of gold is about $800 million. Our favorite bitcoin is considered digital gold. So, if bitcoin ever reaches a market capitalization of $8T, can you guess its price?

The total number of bitcoins that have ever existed is 21 million. Just divide the market capitalization (8 trillion) by the total supply (21 million). The result is a figure of ~$400,000.

Thus, if Bitcoin ever reaches the market capitalization of gold, this would be a 20-fold jump from the current price. You can use a similar model to compare cryptocurrencies with other assets. For example, it would be interesting to compare ethereum’s market capitalization with that of oil, since many people classify it as digital oil.

Why Is Market Cap Important in Crypto?

Market cap is an extremely important indicator of cryptocurrency’s popularity in the long term. How? Let us try to figure that out.

A. Comparison with peers

Polygon and Loopring are two different layer-2 scaling solutions. Simply put, these two different coins belong to two different networks and are responsible for helping the speed and performance of Ether. polygon (MATIC) is currently priced at $0.8 and Loopring (LRC) at $0.3.

Is this information sufficient to assume that polygon is larger than Loopring? Absolutely not. If we compare the market capitalization of these two cryptocurrencies, we find that both are around $5-6 billion. This means that, given the current token supply and price, they are very similar to each other, not that they are very different.

You can develop the same approach to compare different peers in the cryptocurrency market to get an idea of the size of the projects.

B. Comparison with other industries

In the previous example of Bitcoin versus gold, we tried to compare two completely different asset classes to establish a correlation.

A similar analogy can be used to understand Bitcoin’s reach. Many skeptics believe that Bitcoin is a fad that will soon disappear. However, Bitcoin currently has a higher market value than Meta (formerly Facebook). It is extremely difficult to ignore something of this size and quantity.

C. Comparing performance

One can also use market capitalization to determine whether a cryptocurrency is underperforming. For example, suppose there are two mainstream blockchains, such as Ether and Solana. If Ether’s market capitalization is 50 times that of Solana, but its revenues are almost the same, one could assume that Ether is underperforming and a price correction is underway.

Similarly, it is possible to find cryptocurrencies that are undervalued and could go up in the short term.

Conclusion

Market capitalization is one of the most powerful and simple tools for measuring a cryptocurrency. A good understanding of market capitalization will ensure that you do not fall into a pump and dump scheme. If you are looking for a solution to help you with this by separating cryptocurrencies by theme, look no further. For more information, visit Coin Collective.

FAQs

1. What is a good market cap for crypto?

Market capitalization is the product of all coins in circulation and the price of a cryptocurrency. A good or relatively high market capitalization indicates a large project with a high level of security. In general, cryptocurrencies with a market capitalization of more than $10 billion are considered good (large-capitalization cryptocurrencies).

2. What is the total crypto market cap?

The total market capitalization of cryptocurrency is constantly changing based on the price of tokens. Currently the figure is $1.07 trillion. The total capitalization of the cryptocurrency market is calculated by adding up the capitalization of more than 12,000 individual tokens.

3. Is a high market cap good?

High market capitalization often implies a proven business model and a relatively stable cryptocurrency. However, it also means that the project/cryptocurrency/company has grown over a period of time and exponential growth is less likely to occur in the future. However, there is still room for steady growth.

4. How to determine the market cap of crypto?

Market capitalization is determined by multiplying the price of a cryptocurrency by the total number of coins in circulation for that cryptocurrency. Cryptocurrencies can generally be divided into three categories based on market capitalization: large cap, mid cap, and small cap. Large-cap cryptocurrencies are those with a market capitalization of more than $10 billion. Mid-cap cryptocurrencies have a market capitalization between $1 billion and $10 billion. Small-capitalization cryptocurrencies are those with a market capitalization of less than $1 billion.

 

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