Market cap in crypto (market capitalisation) is typically used as an indicator of the dominance and popularity of cryptocurrencies. To calculate the exact value of market cap, we multiply the current price by the circulating supply.
Market cap = Price X Circulating Supply
For instance, if one unit of a cryptocurrency is traded at $1.00, while the circulating supply is equal to 1,000,000 coins, then the market cap of the cryptocurrency would be $1,000,000. However, we need to note that market cap is dependent on the circulating supply of the cryptocurrency right now – rather than its total supply.
A general consensus is that the larger the market cap, the greater the popularity of the coin. A larger market cap would also mean that the coin is more likely to be stable.
Why is it important in crypto?
So what is market cap in crypto? It is the measure of a cryptocurrency’s dominance, essentially. Now, we will explore why market cap is important.
While price is one factor that we can measure a cryptocurrency’s value by, we can use market cap to determine the growth potential of a cryptocurrency.
Cryptocurrencies, like Bitcoin and ETHereum, that have a high market cap of over $10 billion, are likely considered to be low-risk investments. This is because despite the volatile nature of crypto, these coins have high liquidity and can withstand a larger number of buyers cashing out without crashing altogether. A lot of money is needed to significantly manipulate the price of such coins.
On the other hand, mid-cap cryptocurrencies (market cap between $1 billion and $10 billion) and low-cap cryptocurrencies (market cap of less than $1 billion) are generally considered higher-risk investments. Such coins are more susceptible to the volatility of the crypto market.
In Conclusion
What is market cap in crypto? We hope that you understand it is one of the ways we can measure a cryptocurrency’s value and dominance in the market, so that we can make a more informed decision when it comes to investing in crypto. While high-cap cryptocurrencies like Bitcoin and ETHereum are considered to be more stable, they are still prone to price fluctuations due to the ever-changing sentiment of the crypto market.
