A cryptocurrency market capitalization or commonly known as market cap is the total value of all the coins that have been mined. Mining is just the process of solving puzzles, to create new cryptocurrencies. Through mining, the system can confirm new transactions.
A crypto market cap is calculated by multiplying the total number of coins that are circulating at a specified time by the market price of one coin at that very time. The Crypto market cap is simply the total value of all the crypto coins that have been mined, in dollars.
Through the market cap, we can be able to give a rough estimate of how stable an asset is likely to be. A cryptocurrency with a much bigger market cap is more likely to be more stable as compared to the crypto with a smaller market cap, even with the volatility that comes with the cryptocurrencies as well-known bigger ships can navigate through heavy storms.
Importance of the market cap.
Market cap is crucial when determining the value of a cryptocurrency, though in most cases, people use the price of a cryptocurrency to determine its value. Investors use the market cap to determine the growth potential of crypto and also to determine which cryptocurrency is safe to buy.
To demonstrate, let’s compare the market cap of two fictional cryptocurrencies.
If Cryptocurrency A has 300,000 coins in circulation and each coin is worth $2, its market cap is $600,000.
If Cryptocurrency B has 100,000 coins in circulation and each coin is worth $4, its market cap is $400,000.
Even though the individual coin price of Cryptocurrency B is higher than Cryptocurrency A, Cryptocurrency A’s overall value is higher than Cryptocurrency B’s.
Market cap generally enables the investor to make informed decisions in which cryptocurrency to invest in as it gives an overall view of which cryptocurrency is the most favorable as compared to the rest. Though, it is also important to note that many cryptocurrencies’ market cap can change from time to time due to their volatility.
Cryptocurrencies are classified into three categories based on their market cap. These three categories include;
· Large-cap cryptocurrencies. Cryptocurrencies such as Bitcoin and Ethereum have very big market caps of more than $10 billion. These cryptocurrencies are non-susceptible to low liquidity, as a higher volume of people can cash out without affecting the price. Large cryptocurrencies are considered to have lower-risk investments since they have a track record of positive growth.
· Mid-cap cryptocurrencies. Such cryptocurrencies have a market cap of between $1 billion and $10 billion. They are termed as higher-risk investments and have more untapped potential upside.
· Small-cap cryptocurrencies. These cryptocurrencies are more susceptible to dramatic changes based on the view or opinions of the market. They have a market cap of below $1 billion.
The cryptocurrency market cap hit $2 trillion and is still growing tremendously. When the market cap will hill hit $4trillion, the World Causecoin market price will be over $100 a coin
Market cap is a useful metric for comparing the total value of cryptocurrencies, but market trends, a cryptocurrency’s stability, and your financial situation all need to be considered when weighing the risks of any investment.
