What is Cryptocurrency Market Capitalization
Price is one of the parameters taken into account by investors when evaluating coins. They also need to study the market value of the project. This is due to the fact that it gives a more complete picture of what is happening, for example, to compare their cost. This is the most important metric in cryptocurrencies, as well as in traditional investing, because it helps to separate the wheat from the chaff.
What is the market capitalization of cryptocurrencies? Metric calculation
The method of calculating the market capitalization for cryptocurrencies is also similar. We multiply the number of coins in circulation by the market price of one coin. Thus, the market value of a coin = price x number of coins in circulation.
As an example, consider two different cryptocurrencies:
1. Cryptocurrency #1
There are 500,000 tokens in circulation with a market value of $500K.
2. Crypto #2
Has 125,000 tokens in circulation with a market value of $250K.
If you calculate, then the price of each token will be as follows:
Crypto #1 = $1 per token.
Crypto #2 = $2 per token.
Looking at the price alone, coin #2 seems to be winning. However, despite the fact that the price of the cryptocurrency #2 token is twice as high as that of the #1 cryptocurrency, its value, based on market capitalization, is half as much.
If you find money for cryptocurrencies, you can invest in them through Web3 browsers. If coins and blockchain may seem limited to the Web3 digital world, check out our Blockchain in the Supply Chain article to learn about their popularity.
You can also consider the market value of a token as an indicator of its stability. However, in the cryptocurrency markets, “stability” is a relative term. Bitcoin, for example, has the largest market value ($851 billion at the time of writing). But traditional investors still view it as far more volatile than any stock.
Compared to smaller market-cap coins, however, BTC is a relatively stable asset. Smaller market capitalization tokens are subject to sudden price shocks from whales and other fastidious market segments moving large amounts back and forth. In the short history of the crypto market, such spikes have led to the bankruptcy of many traders. Therefore, we can talk about coin capitalization as an indicator of stability.
Similar to traditional investments, we can divide the market cap sizes of cryptocurrencies into three categories:
1. Large cap – over $10 billion
This category includes leading cryptocurrencies such as Bitcoin and Ethereum, as well as most of the top 20 altcoins. These platforms and protocols have a longer track record with numerous developers supporting and creating new projects. Ethereum in particular has a huge number of projects in its ecosystem, from DeFi to NFTs.
In addition, large company tokens are available on more exchanges with higher liquidity and less volatility than mid- and small-cap alts.
2. Average capitalization – from 1 to 10 billion dollars
These sonnets are associated with higher risk, but also have greater upside potential.
3. Small cap – less than $1 billion
Small market capitals have huge profit potential, contrasting with the negative aspect of the most volatile prices.
Cryptocurrencies are distributed on the galactic map according to their individual market capitalization. Negotiable Supply, Maximum Supply, and Total Supply
Answering the question “What is the market capitalization of cryptocurrencies? the supply factor must also be taken into account. Below are three different ways to calculate the token supply.
Methods for calculating the offer of a token.
1. Circulating supply
This indicator roughly reflects the number of tokens circulating in the market.
2. General offer
The total supply is the total number of tokens currently in existence minus the tokens burned.
3. Maximum offer
This metric roughly reflects the maximum number of tokens that will ever exist during the life cycle of a cryptocurrency.
Thus, multiplying the price of a token by a different amount of supply, we get different market capitals.
Revolving Offer vs Fully Diluted Offer
Let’s use the example of bitcoin to see how the market value can change depending on the chosen supply metric.
About 19 million BTC have already been mined. Thus, this number represents the “negotiable supply”. The 21 million BTC that will eventually be mined is a “completely watered-down offer.”
The price of bitcoin at the time of writing is approximately $44,000. So the circulating supply market is 19 million x $44K = $836 billion. The fully diluted supply is 21 million x $44K = $924 billion.
It is easy to understand that the market value estimate can fluctuate depending on whether the investor chooses a negotiable offer or a fully diluted offer.
The circulating supply reflects the current market value of the project. A fully diluted market cap is a predictable number, but has its benefits.
However, investors should be wary that the protocol could greatly increase its market value if its future supply of coins is huge. When making calculations, one should also take into account the impact of locked tokens, which the protocol will never be able to sell.
How to Research the Market Capitals of Cryptocurrencies
If you’re ready to start researching, there are two top sites you should check out:
1.
This resource claims to be “the world’s most authoritative website for tracking the price of crypto assets.” Its mission is to make tokens more recognizable around the world by providing users with accurate, unbiased information to enable them to draw their own conclusions. The US government and major news outlets use his data for reporting.
2.
CoinGecko provides data on various coins, including market value. CoinGecko request information comes from numerous sources and must go through various algorithms to verify its integrity.
Conclusion
In general, cryptocurrency market capitalization is a financial metric that investors can use to compare the value of different assets. However, it is neither independent nor ideal. Therefore, it is best to use the market value as one of the reference points, along with other indicators and fundamental principles of investing.
Investing in higher or lower market capitals is a matter of preference. Cryptocurrencies with higher market caps will appeal to those who want more stability and less volatility. But for those who are more risk tolerant and want to “fly a rocket to the moon”, lower capitalization rates will do. It all depends on the goals of the investor.
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