Market cap in cryptocurrency refers to the combined worth of all the coins which have been mined. To get the market cap, you multiply all the coins in the market by the price of one coin. This metric indicates the market value and the specific size of crypto in the market. Market cap gives an estimate of how stable a cryptocurrency is. A cryptocurrency with a greater market cap will perform better in a volatile market.
To understand the market cap, you can think of it as how stable the cryptocurrency is. Bitcoin, which has the biggest market cap, experiences volatility, affecting each coin’s price. Cryptocurrencies with a larger market cap are considered stable investments, unlike those with lower market caps. Additionally, small market cryptocurrencies are prone to volatility in the market- they experience huge profits or dramatic losses.
It is important to note that you can measure market cap using either circulating or fully diluted supply. Circulating supply refers to the cryptocurrencies that have already been mined, while the fully diluted supply is the ones that have not yet been mined but finally will be mined. People measure the market cap differently using either a circulating supply or a fully diluted number.
The Importance Of Market Capitalisation
Market cap in cryptocurrency is essential because it serves as a tool for measuring the potential of specific crypto and its value against other cryptocurrencies. It helps to indicate the potential of a certain cryptocurrency, its growth potential, and if it’s safe to buy. Here is an example of how you can compare the value of different cryptocurrencies using a market cap.
If cryptocurrency A has 300,000 coins circulating in the market and each coin is valued at $1, its market cap is $300,000. Say cryptocurrency B has 50,000 coins in the market, and every coin is worth $3. Its market cap is $150,000.
Cryptocurrency B is worth more than cryptocurrency A. However, the value of cryptocurrency A is twice that of cryptocurrency B. It is important worth noting that the market cap for cryptocurrencies fluctuates because their market tends to be volatile.
What To Do With Market Cap
Understanding the market cap enables you to determine the value of cryptos, and you can make better investment decisions. Based on market cap, cryptocurrencies are divided into three groups:
Large-cap cryptocurrencies: Their market cap is over $10 billion and include Bitcoin and Ethereum. Large-cap cryptos are a low-risk investment since they show a positive track in their growth. Even when investors cash out higher volumes of large-cap cryptos, they can withstand it because their prices will not be affected.
Mid-cap cryptocurrencies: These are cryptocurrencies in the range of $1 to $ billion. These cryptos have greater potential for making profits but have a high risk.
Small-cap cryptocurrencies: They have a lower market cap below $1 billion and are prone to volatility in the market.
Conclusion
Market cap is an important tool for measuring and comparing the value of cryptocurrencies. When you fully understand the market cap in crypto, it will help you know the risks when investing, considering how the crypto market is volatile. When investing in cryptocurrencies, consider market trends, your financial situation, and a crypto’s stability will determine your investment risks.
Alexander Gierczyk 