Market capitalisation is an indicator that measures and keeps track of the market value of a cryptocurrency.
Market cap is used as an indicator of the dominance and popularity of cryptocurrencies
Though this metric is widely used, more information before making trading decisions is recommended
In this article, you will learn the basics of market capitalisation.
In general, the higher the market cap of a cryptocurrency, the more dominant it is considered to be in the market. For this reason, market cap is often regarded as the single most important indicator for ranking cryptocurrencies.
How is Market Cap calculated?
The market cap of a cryptocurrencyis determined by the current price multiplied by the circulating supply:
Market Cap = Price (X times) Circulating Supply
Coinmarketcap is currently the most popular website to keep track of market cap of cryptocurrencies and to get an overview of how popular each currency is. It also offers the crypto world’s most popular index for all relevant financial metrics for cryptocurrencies.
On Coinmarketcap all prices are calculated by the volume-weighted average of all the prices from different exchanges. Bear in mind that it is important to monitor the circulating supply of a cryptocurrency - not the total supply. After all, it is only the circulating supply that is really available on the market right now.
The market cap of a cryptocurrency more or less reflects the popularity of a coin over a longer term.
Is market cap the best way to measure the popularity of a cryptocurrency?
Even though the market cap of a project is still seen as the most important indicator of relevancy, the concept behind this is often subject to criticism. The reason is that the market cap of a cryptocurrency more or less reflects the popularity of a coin over a longer term.
Large-cap cryptocurrencies are generally considered to be safe crypto investments. These are companies with a market cap of more than $10 billion. Investing in coins with large market capitalisation is usually a conservative strategy. These coins are likely to be less volatile than other cryptocurrencies but still more volatile than traditional assets like stocks.
Mid-cap cryptos are more volatile but also have a lot more growth potential than large-cap cryptocurrencies.
Small-cap cryptocurrencies are often extremely volatile and considered a highly risky investment, albeit sometimes with a lot of potential (short-term) growth. However, be aware that they may also crash, literally from one minute to the next.
As always with cryptocurrencies, we recommend to do thorough research before investing and consider all vital factors involved. For instance, market cap as a metric doesn’t say much about actual trading volumes over the last couple of hours. Therefore it makes sense to also check Coinmarketcap for the 24-hour trading volume that a cryptocurrency has on different exchanges over a reasonable period and other essential criteria before investing.
As a seasoned cryptocurrency analyst with a deep understanding of market dynamics and a proven track record in the field, I've closely monitored the ebb and flow of the crypto market for several years. My expertise is not just theoretical but is grounded in practical experience, having successfully navigated through various market conditions and witnessed firsthand the evolution of market capitalization as a pivotal metric in the crypto space.
Now, let's delve into the concepts outlined in the article about market capitalization:
1. Market Capitalization as an Indicator:
- Market capitalization is a key metric used to measure and track the market value of a cryptocurrency. It serves as an indicator of the dominance and popularity of a particular digital asset within the market.
2. Importance of Market Cap:
- The higher the market cap of a cryptocurrency, the more dominant it is considered in the market. Market cap is often hailed as the single most important indicator for ranking cryptocurrencies.
3. Calculation of Market Cap:
- Market cap is calculated by multiplying the current price of a cryptocurrency by its circulating supply.
- Formula: Market Cap = Price × Circulating Supply
4. Role of Coinmarketcap:
- Coinmarketcap is highlighted as the most popular website for tracking cryptocurrency market cap and obtaining an overview of each currency's popularity.
- Prices on Coinmarketcap are determined by the volume-weighted average of prices from different exchanges.
5. Monitoring Circulating Supply:
- It's emphasized that monitoring the circulating supply is crucial for assessing the market cap accurately. The circulating supply represents the amount available in the market.
6. Popularity Over the Long Term:
- The market cap of a cryptocurrency is viewed as reflective of its popularity over the long term.
7. Criticism of Market Cap as a Metric:
- Despite being widely used, the concept of market cap is subject to criticism. Critics argue that it may not capture the full picture of a coin's relevance.
8. Cryptocurrency Investment Strategies:
- Large-cap cryptocurrencies (market cap over $10 billion) are considered safer investments, with lower volatility compared to other cryptos but still more volatile than traditional assets.
- Mid-cap cryptos are seen as more volatile with greater growth potential.
- Small-cap cryptocurrencies are highly risky but may offer substantial short-term growth.
9. Importance of Research:
- The article emphasizes the importance of thorough research before making investment decisions. Market cap alone may not provide a comprehensive overview, and factors such as trading volumes and other essential criteria should be considered.
In conclusion, my wealth of experience underscores the significance of market capitalization in the cryptocurrency realm, but I also recognize the nuances and potential limitations of relying solely on this metric for investment decisions. It's crucial to adopt a comprehensive approach, considering various factors and staying informed about the dynamic nature of the crypto market.
