- Why does market capitalization matter?
- Determining the desired cryptocurrency
- Classification of cryptocurrencies
- Large capitalization
- Average capitalization (Mid-cap)
- Small capitalization
- Comparison of the cost of cryptocurrencies
- Cryptocurrency Market Capitalization Weighted Strategy
- What can affect market capitalization?
The market capitalization of cryptocurrencies is the monetary value of a token or coin multiplied by the amount of currency currently in circulation. The market value of the token emphasizes the stability of the asset in the long term. While cryptocurrencies are undeniably volatile, cryptocurrencies with a large market cap usually indicate that investments are more stable as cryptocurrencies with a smaller cap are more susceptible to general market sentiment.
Why does market capitalization matter?
In the cryptocurrency market, price itself can be a deceiving indicator when it comes to determining the true potential and value of a project. Even the largest cryptocurrency, Bitcoin, can skyrocket or drop depending on factors such as public enthusiasm, rapid changes in Revolving offer or even a ban on cryptocurrencies in some countries. Events like these often affect the overall picture of the ultimate potential of a cryptocurrency.
Negotiable offer is the number of cryptocurrencies or tokens that are publicly available and circulate on the cryptocurrency market.
The circulating supply of a cryptocurrency can be used to calculate the market capitalization of a coin, which is obtained by multiplying the current market price by the number of coins in circulation.
Market capitalization is used as an indicator of the dominance and popularity of a coin. This helps make smarter investment decisions.
Savvy crypto investors prefer to see a coin or token that has a relatively low supply but a high value. At the same time, crypto investors use market value as a key indicator to compare the value of cryptocurrencies and determine their potential growth. In general, assets with a high market value usually mean that the investor is willing to pay more for those assets.
For example, when crypto enthusiasts talk about the total supply volume of a cryptocurrency, they sometimes use the term fully diluted supply (FDV). The fully diluted market value is calculated based on the value of all crypto coins, not just those in circulation. One of the reasons why Bitcoin (BTC) continues to thrive is because its fully diluted supply is only 21 million. There are currently over two million of these coins left to mine as the total circulating supply of BTC is over 18 million. As a result, BTC is one of the highest yielding assets due to its scarcity and utility. When discussing the volume of a token supply, it is important to distinguish between what is used as a standard - FDV or circulating supply. Accounting for market capitalization allows you to see the macro picture for making more informed investment decisions.
Determining the desired cryptocurrency
A desirable cryptocurrency is one that reassures investors that its future will turn out to be even better than its historical charts. Just as gold often serves as the standard for the precious metals market, the crypto community tends to view bitcoin as the benchmark. As the value of 1 BTC rises, so does the market capitalization of Bitcoin.
On January 1, 2015, the price of BTC was hovering around $320, with a market value of $4,32 billion. In just five years, both of these figures have risen: the price has skyrocketed to $7 and the market capitalization has exceeded $196 billion. Today, these figures are nine times higher - more than 130 thousand dollars for 60 BTC. No matter how attractive a particular crypto project may be – investors love to think about the use cases for different coins and tokens – the market value of cryptocurrencies grows in proportion to the rather low supply and high value of each coin.
For novice investors, a simple look at the market value can help avoid the most common pitfalls and increase the chances of success. While crypto investors should always be treated with a healthy dose of skepticism, there is a reason why they mention market value so often: it is one of the most reliable and useful data sources an investor can rely on.
Classification of cryptocurrencies
Of course, not all market capitals are created equal. As with equities, the cut-off for major cryptocurrencies is currently around $10 billion. For those who are accustomed to investing in the conventional stock market, buying large capital is akin to buying blue chip stocks. Mid-cap projects are projects in the range of $1 billion to $10 billion. The small-cap designation means that the currency's total market capital is currently less than $1 billion. Of course, the process of buying cryptocurrency is different due to its volatility. Cryptocurrencies can rise or fall, and the designation of a currency's market capitalization is never considered definitive.
Ultimately, all high-net-worth cryptocurrencies started out with small caps at some point. A well-thought-out investment strategy always includes researching the growth potential of a project, and monitoring its market capitalization and classification is an essential step. There are many interesting founders and thought leaders in the world of cryptocurrencies who have influenced the market. There are even cases of market movement due to someone's tweets. However, the data shows that most people should follow the numbers and market caps rather than heeding the advice of individuals who may or may not consider the interests of the general public when sharing their opinions about certain coins or tokens.
The most prominent large-cap cryptocurrencies currently include Bitcoin (BTC), Ethereum (ETH), Cardano (ADA), and Binance Coin (BNB). The market value of Ripple (XRP) is currently $50 billion, with a fully diluted market value of over $100 billion. These are the coins that people learn about from the mainstream media and networks focused on traditional finance. A large cap coin is like a celebrity that everyone knows. Moving into large-cap territory is an important milestone for any project.
While the cryptocurrency market is still considered volatile at this level, investors tend to classify large-cap cryptocurrencies as less risky, as they are more established, having demonstrated sustained growth and liquidity. They are also less prone to plummeting, even when there is a large number of investors in the market exiting their investments. However, as anyone who has been following the cryptocurrency markets for over a year can attest, nothing is impossible with cryptocurrency.
Average capitalization (Mid-cap)
While they have yet to hit the $ 10 billion mark, these coins tend to be on the move. Examples of popular mid-cap projects are Polygon (MATIC), Internet Computer (ICP), Axie Infinity (AXS), Stellar Lumen (XLM), and VeChain (VET). As of this writing, Algorand (ALGO) has moved into large-cap territory. While mid-cap projects may carry more risk when investing, they can also bring more benefits to those who enter early. After all, the chance to buy BTC at $ 100 has already appeared and disappeared. However, to use another example, the ability to enter MANA still available. Its attractive price (currently below $3) multiplied by a circulation volume of about 18 billion gives a market capitalization of about $5 billion. Market capitalization is an important element that investors look at when deciding whether to participate in a mid-cap project. .
Small cap cryptocurrencies usually attract a lot of conversation on the Internet. For those looking for risky but potentially lucrative projects to add to their portfolios, small-cap cryptocurrencies can be incredibly attractive. Many of the decentralized finance (DeFi) that are causing the hype are still considered petty these days. Projects like Nord Finance (NORD) boast exciting new products like advances in liquidity mining, but many of these small-cap cryptocurrencies are still relatively new. As long as they continue to prove themselves as small cryptocurrencies, investors will become more familiar with their features and offerings.
Comparison of the cost of cryptocurrencies
Since the market value fluctuates along with the price of the cryptocurrency, it is important to get up-to-date information. Most crypto aggregators and exchanges in real time update information about the market value of an asset, its price and the volume of the circulating supply. For example, CoinMarketCap и CoinGecko offer extensive updated information about cryptocurrencies. While every crypto investor has a different way of tracking these metrics, there are many resources available on the Internet. Market capitalization is the hallmark of more sophisticated investors.
Cryptocurrency Market Capitalization Weighted Strategy
Investors looking to add another element to their investment strategy may benefit from a weighted estimate of market capitalization. For example (we use small numbers for ease of calculation), if the market value of cryptocurrency A is $20 and cryptocurrency B is $80, then the sum of both market values is $100. A person investing $100 can put $20 of their funds into Cryptocurrency A and $80 into Cryptocurrency B. Adopted from the world of centralized finance (CeFi), the market cap weighted strategy appears to favor investing in higher market cap coins. There are those who believe that this tactic does not work as well in the world of cryptocurrencies as it does in traditional finance, but many others use this investment strategy on a daily basis.
What can affect market capitalization?
The factors that affect market capitalization are supply and price. With a skyrocketing price, market capitalization increases significantly. However, while supply always plays a role in the equation, investors get a clearer picture of the future of any cryptocurrency by setting aside temporary price worries and looking at market cap data.
As an investment vehicle, market capitalization can be extremely useful. As with any other investment endeavor, those who want to get involved in the world of cryptocurrencies must use the actual data. It can be very tempting – especially in the case of cryptocurrencies – to make emotional decisions. The media inflates every bull run in Bitcoin and other altcoins, but generally does not cover protracted bear markets with the same bated breath. A crypto investor who is willing to take market value into account uses the same principle as a pilot who checks a dashboard at the first sign of trouble. Instead of panicking and looking around, this pilot knows that checking the most up-to-date data will help him make effective decisions to take to the skies again.