Prices alone are not always an excellent way to judge a project’s real value and potential in the crypto market. Cryptocurrency prices can go up and down by a lot depending on changes in the number of coins in circulation, general interest, etc. This is why market-cap of crypto is a crucial way for buyers to evaluate and rank assets and determine how much they can grow. A bigger market cap means more investors, security, and power in the crypto space.
This article explains what crypto market cap means and how to use it to compare the total value of one cryptocurrency to another so you can make better investment choices.
- Market capitalization shows information about a cryptocurrency, such as where it stands in the market and how big it is compared to other cryptocurrencies.
- Cryptocurrency’s market cap is calculated by multiplying a coin’s price by the number in circulation.
- A bigger market cap usually means more investors, security, and authority in the crypto space.
- People think of low market-cap cryptos as very risky but profitable projects.
What is Market Capitalization?
A cryptocurrency market cap is a way to determine how much a cryptocurrency is worth. Market capitalization is a reliable and vital piece of information that investors can use to improve their chances of success greatly.
Cryptocurrencies with a high market capitalization are more stable and give you more trust, while coins with a low market capitalization are considered speculative and risky but profitable.
Knowing whether a measure is based on FDV or circulating supply is essential. FDV, fully diluted market cap, is based on the total amount of coins, not just those in circulation.
What Affects the Market Capitalization?
Price and supply are the two things that affect market capitalization.
The amount of a specific coin on the market affects its market cap. When demand grows faster than supply, prices go up, which could affect the general market cap. Bitcoin, for example, has a fixed number of 21 million bitcoins. Others, like Ethereum, don’t have a fixed total number, but some ETH is burned to reduce the amount in circulation.
Even if only a tiny amount of cryptocurrency is in circulation, the market cap will increase significantly if its price is high. On the other hand, a cryptocurrency will have a small market cap if it has a high supply but a low price.
How to Classify Cryptocurrency Market Cap
If you want to invest in a pretty stable cryptocurrency, choose one with the biggest market cap. We can divide the sizes of crypto market caps into three groups:
● Large-Cap Cryptocurrencies
Large-cap coins have a market capitalization of more than USD 10 billion. These are low-risk options because they have shown steady growth and are easier to get your hands on. Also, their prices are less likely to fluctuate a lot.
● Mid-Cap Cryptocurrencies
These are the cryptocurrencies whose market values range from USD 1 billion to USD 10 billion. Due to its untapped potential, the medium-cap segment is called high-risk and high-reward.
● Small-cap coins
These are the coins whose market caps are less than USD 1 billion. Even though these are the riskiest, they can also be very rewarding.
Strategy Based on Crypto-Weighted Market Cap
With a weighted market cap approach, you put a certain amount of money into each asset based on its worth on the market. So, if you wanted to put $100 in the two biggest cryptocurrencies, Bitcoin and Ethereum, you would have to add up their total market capitalizations and then divide that total by the percentages each cryptocurrency holds in that total (71% Bitcoin and 29% Ethereum). You would put about $71 into Bitcoin and about $29 into Ethereum.
A crypto market cap is a key metric that shows how much the token is worth and how much investors trust the project. A market cap and basic factors like a cryptocurrency’s price, circulating supply, hash rate, and trading volume can help you determine how well it will perform before investing.
Before engaging with smart contracts, you should research, get your own advice, and be careful because the cryptocurrency market is very volatile and sensitive to secondary activity.