In the cryptocurrency market, prices alone can be a misleading indicator for evaluating a project’s true potential and value. Cryptocurrency prices may rise and fall dramatically based on factors such as changes in circulating supply, public enthusiasm, etc. This is why investors use market capitalization as a crucial measure for evaluating and ranking assets and determining 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 cap" and how to use it to compare the total value of one cryptocurrency with another to make more informed investment decisions.
Key Takeaways
- Market cap indicates data on any given cryptocurrency, including its market position and dominance compared to other cryptocurrencies. That’s why it's considered a more precise metric than the cryptocurrency price and is used when ranking cryptocurrencies.
- & Cryptocurrency market cap 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.&
- Low market cap coins are considered speculative yet potentially lucrative projects.
What Is Crypto Market Cap?
Cryptocurrency market cap 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 the market cap as a reliable and crucial piece of data that can significantly increase their chances of success.
Market cap indicates data on any given cryptocurrency, including its market position and dominance compared to other cryptocurrencies. That’s why it's considered a more precise metric than the cryptocurrency price and is used when ranking cryptocurrencies.
High market cap cryptocurrencies are more reliable and give you more confidence, while low market cap coins are seen as speculative and risky, yet potentially lucrative projects.
Pro-tip: It's crucial to differentiate whether one uses FDV or circulating supply as a metric. FDV, or a fully diluted market cap, is calculated based on the total number of coins, not just the ones in circulation.
Another alternative method includes the maximum supply, where market capitalization is calculated by multiplying an asset's current price by the maximum number of coins that could ever exist. However, not only a higher circulating supply does affect the price of cryptocurrencies, but also some coins have no upper limit.
Factors Affecting the Market Cap
The factors that affect market capitalization are supply and price.&
Supply
The cryptocurrency market cap is affected by the supply of the given cryptocurrency. When demand increases faster than supply, the price increases, potentially impacting its overall market cap. 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, don't have a fixed total supply, but some ETH is burnt or sent to an unrecoverable address on the blockchain to prevent the circulating supply from growing too large. As a result, the supply of Ethereum in circulation is now declining. Some other cryptocurrencies created by companies have an unlocking schedule. To create scarcity and maintain value, only a portion of their total supply goes into circulation at the time of their initial coin offering, and the rest will unlock over a set period.
Price
Even when a small number of coins is in circulation for a given cryptocurrency, its market cap will rise significantly if the price is high. A cryptocurrency's high price, even with a low circulating supply, leads to a large market cap. Conversely, if a cryptocurrency has a high circulating supply but its price is low, it may not have a large market cap.
Fast Fact
A weighted market cap strategy means you put a proportional investment into each asset based on market cap.
How to Use Crypto Market Cap as an Investment Tool?
Now that you know everything about the crypto market cap let's understand how to use it to your advantage to make well-informed investment decisions.&
Cryptocurrency Market Cap Classification
If you're looking to invest in a relatively stable cryptocurrency, then select the ones with the highest market cap. We can break down cryptocurrency market cap sizes into three categories:
Large-Cap Cryptocurrencies
Digital currencies with a market cap of more than USD 10 billion are considered large-cap cryptocurrencies. These are considered low-risk investments because they've 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 USD 1 to 10 billion. The medium-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 of less than USD 1 billion. While these projects carry the highest levels of risk, they can also be extremely rewarding. eCash (XEC), NEO, USDD, Bitcoin Gold (BITG), and & Nord Finance& (NORD) are some of the exciting small-cap cryptocurrencies.
Crypto Weighted Market Cap Strategy
A weighted market cap strategy means you put a proportional investment into each asset based on market cap. So, for example, to invest $100 in the two biggest cryptocurrencies, Bitcoin and Ethereum, you must take the total market capitalizations of both, then divide out the percentages each crypto holds in that total (71% Bitcoin and 29% Ethereum). Accordingly, you’d invest about $71 in Bitcoin and $29 in Ethereum.
Final Thoughts
A crypto market cap is an important metric that indicates the asset's market value and the investors' trust in the project. Along with such basic parameters as the cryptocurrency's price, circulating supply, hashrate, and trading volume, a market cap enables you to assess the cryptocurrency's performance before investing.
Please compare the total value of cryptocurrencies, the market trends, a cryptocurrency's stability, and your own financial situation when weighing the risks of any investment. Cryptocurrency is a highly volatile market sensitive to secondary activity, do your independent research, obtain your own advice, and practice due diligence before interacting with smart contracts.
You can find the current price, charts, price statistics, market cap, total supply, max supply, circulating supply, 24h trading volume, etc., of different cryptocurrencies, including new coins, and get updates in real-time on CoinStats, one of the best crypto platforms around.
You’re 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 DeFi, explore our in-depth buying and staking guides on various cryptocurrencies, such as What Is DeFi Staking, How to Stake MATIC, How to Stake Ethereum, How to Buy Cryptocurrency, and learn more about wallets and exchanges, portfolio trackers, etc.& & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & &
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