In the cryptocurrency market, prices alone can be a misleading indicator to assess the true potential and value of a project. Cryptocurrency prices can rise and fall dramatically depending on factors such as changes in circulating supply, public enthusiasm, etc. That’s why investors use market capitalization as a crucial metric to evaluate and rank assets and determine their growth potential. Larger market caps generally indicate more investors, relatively more stability, and more influence in the crypto space.
This article will delve into the question of “what is crypto market capitalization” and how to use it to compare the total value of one cryptocurrency with another to make better investment decisions. enlightened.
Let’s get straight to the point!
Key points to remember
- Market capitalization indicates data about a given cryptocurrency, including its position in the market and its dominance against other cryptocurrencies. This is why it is considered a more accurate measure than the price of cryptocurrency and is used when ranking cryptocurrencies.
- Cryptocurrency market capitalization measures the market value of a cryptocurrency and is determined by the current market price of a token or coin multiplied by its circulating supply.
- Larger market caps generally indicate more investors, relatively more stability, and more influence in the crypto space.
- Small market cap coins are considered speculative but potentially lucrative projects.
What is Crypto Market Cap?
Cryptocurrency market capitalization measures the market value of a cryptocurrency and is determined by the current market price of a token or coin multiplied by its circulating supply. Investors can rely on market capitalization as reliable and crucial data that can significantly increase their chances of success.
Market capitalization indicates data about a given cryptocurrency, including its position in the market and its dominance against other cryptocurrencies. This is why it is considered a more accurate measure than the price of cryptocurrency and is used when ranking cryptocurrencies.
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Large market cap cryptocurrencies are more reliable and give you more confidence, while low market cap coins are considered speculative and risky, but potentially lucrative ventures.
Pro Tip: It is crucial to differentiate whether using FDV or circulating supply as a metric. FDV, or fully diluted market capitalization, is calculated based on the total number of coins, not just those in circulation.
Another alternative method includes maximum supply, where market capitalization is calculated by multiplying the current price of an asset by the maximum number of coins that could exist. However, not only does a higher circulating supply affect the price of cryptocurrencies, some coins do not have an upper limit.
Factors Affecting Market Capitalization
The factors that affect market capitalization are supply and price.
To supply
Cryptocurrency market capitalization is affected by the supply of the given cryptocurrency. When demand increases faster than supply, the price increases, potentially impacting its overall market capitalization. Bitcoin, for example, has a fixed supply of 21 million bitcoins – its supply is scarce, and this scarcity drives its value up. Others, like Ethereum, have no fixed total supply, but some ETH is burned or sent to an unrecoverable address on the blockchain to prevent the circulating supply from becoming too large. As a result, the supply of Ethereum in circulation is now down. Some other company-made cryptocurrencies have an unlock schedule. To create scarcity and maintain value, only a portion of their total supply is released at the time of their initial coin offering, and the rest will unlock over a set period of time.
Price
Even when a small number of coins are in circulation for a given cryptocurrency, its market capitalization will increase significantly if the price is high. The high price of a cryptocurrency, even with a low circulating supply, leads to a large market capitalization. Conversely, if a cryptocurrency has a high circulating supply but its price is low, it may not have a large market capitalization.
Quick fact
A weighted market capitalization strategy means that you place a proportional investment in each asset based on market capitalization.
How to use crypto market capitalization as an investment tool?
Now that you know all about crypto market capitalization, let’s see how to use it to your advantage to make informed investment decisions.
Classification of cryptocurrency market capitalization
If you are looking to invest in a relatively stable cryptocurrency, select those with the highest market capitalization. We can divide the market capitalization sizes of cryptocurrencies into three categories:
Large Cap Cryptocurrencies
Digital currencies with a market capitalization of more than 10 billion USD are considered large cap cryptocurrencies. These are considered low risk investments as they have demonstrated sustainable growth and have higher liquidity. Their prices are also less likely to rise or fall drastically. Some examples are BTC, ETH, USDT, BNB, USD Coin, etc.
Mid Cap Cryptocurrencies
These are cryptocurrencies with market caps between $1 billion and $10 billion. The mid cap segment is considered high risk and high reward due to its untapped potential. Some examples include Polygon (MATIC), Internet Computer (ICP), Axie Infinity (AXS), Stellar Lumen (XLM), VeChain (VET), Dogecoin (DOGE), Shiba Inu (SHIB), Litecoin (LTC).
Small Cap Cryptocurrencies
These are cryptocurrencies with market caps below $1 billion. Although these projects carry the highest levels of risk, they can also be extremely rewarding. eCash (XEC), NEO, USDD, Bitcoin Gold (BITG) and Finance North (NORTH) are some of the exciting small cap cryptocurrencies.
Crypto-Weighted Market Cap Strategy
A weighted market capitalization strategy means that you place a proportional investment in each asset based on market capitalization. So, for example, to invest $100 in the two largest cryptocurrencies, Bitcoin and Ethereum, you would take the total market caps of the two and then divide the percentages each crypto holds of that total (71% Bitcoin and 29% Ethereum). As a result, you would invest around $71 in Bitcoin and $29 in Ethereum.
Final Thoughts
A crypto market capitalization is an important metric that indicates the market value of the asset and investor confidence in the project. Along with basic metrics such as cryptocurrency price, circulating supply, hashrate, and trading volume, a market capitalization allows you to gauge the performance of cryptocurrency before investing.
Please compare the total value of cryptocurrencies, market trends, the stability of a cryptocurrency and your own financial situation when evaluating the risks of any investment. Cryptocurrency is a highly volatile market susceptible to secondary activity, do your independent research, get your own advice, and do your due diligence before interacting with smart contracts.
You can find the current price, charts, price stats, market cap, total supply, maximum supply, circulating supply, 24h trading volume, etc., of different cryptocurrencies, including new parts, and get real-time updates on CoinStatsone of the best crypto platforms around.
You are welcome to visit our CoinStats Blog to get a broader perspective on decentralized finance and how it seeks to empower people. You can also read our articles, such as What is DeFiexplore our detailed buying and staking guides on various cryptocurrencies, such as What is DeFi Staking, How to bet MATIC, How to stake Ethereum, How to buy cryptocurrencyand learn more about wallets and exchanges, portfolio monitoringetc
