Crypto Market Capitalization Explained
Learn how the crypto & blockchain market capitalization works, how to calculate prices cap, & all you want to see explained in a simple guide
Calculating the market capitalization of a cryptocurrency project is quite simple. Although most enthusiasts compare the market capitalization of individual projects, it can also be useful to keep an eye on the big picture. Learn how the crypto & blockchain market capitalization works, how to calculate the prices cap, and all you want to see explained in a simple guide.
The total value of all crypto-assets is much more than just Bitcoin or Ethereum, even though they are the two largest projects by their market capitalization.
All major cryptocurrency data aggregators report the total crypto market capitalization, making it relatively easy to track this metric. But what does this mean, and what can it tell us about the market? Learn this topic deeper with the help of BTC to calculate the prices of the crypto market.
What is crypto market capitalization?
Market capitalization represents the current market value of a cryptocurrency network. It is under calculation by multiplying the number of crypto assets in circulation by the price of a single unit.
So let’s say we have two networks, AliceCoin and BobCoin. AliceCoin’s total supply is 1,000 coins and they are all circulating. BobCoin is a Proof of Work network with 60,000 of the 100,000 total supply coins currently in circulation. The current market price of AliceCoin is $100 and BobCoin is $2. Which coin has the higher market cap?
Market capitalization = circulating supply * price
AliceCoin market cap = $1,000 x $100 = $100,000
BobCoin market cap = $60,000 x $2 = $120,000
Even though one BobCoin is 50 times cheaper than one AliceCoin, the value of the BobCoin network is still higher than the value of AliceCoin. This is why the market cap is the best estimate of the value of the network than just the price of an individual coin to calculate the prices of the crypto market.
What is the total crypto market cap?
Total market capitalization reflects the total value of Bitcoin, altcoins, stablecoins, tokens, and all other crypto assets on the market. Many consider this metric important because it indicates the size of the industry as a whole.
Why is market cap necessary?
The total market value of all cryptocurrencies is a significant amount of information about any present cryptocurrency on the market. It demonstrates how the general public perceives a particular cryptocurrency and its relative popularity compared to other cryptocurrencies.
The value of a cryptocurrency is directly related to the price and circulation of the cryptocurrency around the world to calculate the prices of the crypto market.
Cryptos with larger market caps are more popular because they are up more desirable than other cryptocurrencies. This is why market cap is commonly present when ranking cryptocurrencies. The price of a cryptocurrency is not enough to determine its market position. The market cap is more accurate, but the cap is more precise.
A stock’s market value can also reflect patterns and trends. For instance, if a cryptocurrency associated with NFTs begins to experience fluctuations, it’s indicative of the cryptocurrency’s popularity or lack thereof attracting or losing investors.
Crypto classification by total market value. Cryptocurrencies are under a division into four distinct classes on their total value:
Mega-cap includes only two cryptocurrencies: BTC and Ethereum (ETH). At the time of writing, BTC has a market value of around $500 billion, while ETH has a value of around $250 billion.
Large-cap: Crypto Market Capitalization
Large cryptocurrencies have a total value of more than $11 billion. They’re up low-risk investments because of their consistent record of success.
A few examples of large cryptocurrencies are Tether (USDT), USD Coin (USDC), BNB, XRP, Cardano (ADA), Solana (SOL), and Polkadot (DOT). Many large cryptocurrencies are up stablecoins because of their ability to maintain a relatively consistent value.
The small-cap segment has cryptocurrencies with a market value of $1 billion to $10 billion. Investors consider medium-size cryptocurrencies to be high-risk, high-reward coins because they have yet to be fully up. Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), and Litecoin (LTC) are some of the more popular small-cap cryptocurrencies.
Smaller cryptocurrencies have a higher degree of risk. They have a total market value of less than $1 billion. Many new cryptocurrencies, such as eCash (XEC), NEO, USDD, and Bitcoin Gold (BITG), are classified as this.
Liquidity Crypto Market Capitalization
When comparing different cryptocurrencies, you may have encountered the term “liquidity.” It’s a common phrase in finance that’s up to describe the situation, and for good reason. Liquidity has a significant impact on the market cap and the decision to buy or sell coins.
What is liquidity? It’s a term that describes the capacity of an asset to be exchanged for cash or another asset at its current value. Investors in cryptocurrencies seek to purchase and sell at a fair price based on the cryptocurrency’s price.
For instance, if you own a small portion of a bitcoin and want to convert it to dollars, there must be sufficient demand from the seller’s side to make a profit or sell it for a reasonable rate. As a result, greater liquidity is often preferred and is generally associated with lower risk.
The total value of a cryptocurrency is determined by the current price and the entire supply.
- The market cap of a cryptocurrency is primarily determined by two critical factors: supply and price. If a cryptocurrency’s supply is limited, it is typically more valuable. A high-priced coin that has a low circulating supply still has a large market cap, even if the total supply is lower. This is also true of a low-priced coin with a high circulating supply.
- Cryptocurrencies are categorized into four main market caps: Mega-cap, large-cap, medium-cap, and small-cap.
- The liquidity and fully diluted market capitalization of cryptocurrencies are important factors to consider before investing.
The crypto world is volatile and always in motion. If you’re a potential investor interested in current information about this part of the world, Worldcoin is here to assist you.
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