What is the market capitalization of cryptocurrencies?

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 circulating 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 of a cryptocurrency, they sometimes use the term fully diluted supply (FDV). Fully diluted market value is calculated based on the value of all coins in a cryptocurrency, not just those in circulation. One of the reasons 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 be mined, as BTC’s total circulating supply is over 18 million. As a result, BTC is one of the highest-yielding assets, due to its scarcity and utility. When discussing a token’s supply, it’s important to distinguish whether FDV or circulating supply is used as the standard. Taking market cap into account allows you to see the macro picture to make more informed investment decisions.

Determining the desired cryptocurrency

An aspirational cryptocurrency is one that convinces investors that its future will be even better than its historical charts. Just as gold often serves as a standard for the precious metals market, the crypto community tends to look to Bitcoin as a benchmark. As the value of 1 BTC increases, so does Bitcoin’s market cap.

On January 1, 2015, the price of BTC was hovering around $320, with a market cap of $4,32 billion. In just five years, both figures have risen, with the price soaring to $7 and the market cap exceeding $196 billion. Today, those figures are nine times higher, at over $130 per BTC. No matter how attractive a crypto project may be — investors love to ponder the use cases of various coins and tokens — the market value of cryptocurrency rises proportionally to the relatively low supply and high cost 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 caps are created equal. As with stocks, the cutoff for entering the major cryptocurrencies is currently around $10 billion. For those accustomed to investing in the regular stock market, buying large caps is akin to buying blue-chip stocks. Mid-caps are those in the $1 billion to $10 billion range. The small-cap designation means that the total market capitalization of the currency 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 a currency’s market cap designation is never considered final.

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.

Large capitalization

The most well-known large-cap cryptocurrencies currently include Bitcoin (BTC), Ethereum (ETH), Cardano (ADA), and Binance Coin (BNB). Ripple (XRP) currently has a market cap of $50 billion and a fully diluted market cap of over $100 billion. These are the coins that people hear about from mainstream media and traditional finance-focused networks. A large-cap coin is like a celebrity that everyone knows. Entering large-cap territory is a big moment 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 is still available. Its attractive price (currently below $3), multiplied by a float of about $18 billion, gives a market cap of about $5 billion. Market cap is an important element that investors look at when deciding whether to participate in a mid-cap project.

Small capitalization

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

For investors looking to add another element to their investment strategy, market cap weighting may be helpful. For example (using small numbers for simplicity), if cryptocurrency A has a market cap of $20 and cryptocurrency B has a market cap of $80, the sum of the two market caps is $100. A person investing $100 might allocate $20 of their funds to cryptocurrency A and $80 to cryptocurrency B. Adopted from the world of centralized finance (CeFi), the market cap weighting strategy obviously favors investing in coins with higher market caps. There are those who believe that this tactic does not work as well in the crypto world as it does in traditional finance, but many others employ this investing 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.

Сonclusion

As an investment tool, market cap can be extremely useful. As with any investment endeavor, those looking to participate in the cryptocurrency world must use factual data. It can be tempting, especially with cryptocurrency, to make emotional decisions. The media hypes every bull run in Bitcoin and other altcoins, but they typically don’t cover protracted bear markets with the same bated breath. A crypto investor who is willing to take market cap into account is using the same principle as a pilot who checks his dashboard at the first sign of trouble. Rather than panicking and looking around, this pilot knows that checking the most current data will help him make effective decisions to get back into the sky.