In this article, you will learn what is market cap in cryptocurrency and why is market cap important. As the cryptocurrency industry gets stronger, it is needed to measure the size of the market. Investors sought streamlined ways of analyzing the market and the market cap is the best way.
What is Market Cap in Cryptocurrency?
Market capitalization is an indicator that measures and keeps track of the market value of a cryptocurrency. Market cap is used as an indicator of the dominance and popularity of cryptocurrencies.
Market capitalization illustrates the overall size of a cryptocurrency's place in the market. To calculate a coin's market cap, you multiply the number of coins that have been issued by the price of a single coin. You can use market cap to compare and rank coins within the crypto market. Market cap shifts and varies along with the prices and circulating supply of crypto coins and tokens, but relative rankings are relatively stable.
Why is Market Cap Important?
Price is just one way to measure a cryptocurrency's value. Investors use market cap to tell a more complete story and compare value across cryptocurrencies. As a key statistic, it can indicate the growth potential of a cryptocurrency and whether it is safe to buy, compared to others.
To demonstrate, let's compare the market cap of two fictional cryptocurrencies.
If Cryptocurrency A has 400.000 coins in circulation and each coin is worth $1. it's market cap is $400.000.
If Cryptocurrency B has 100.000 coins in circulation and each coin is worth $2. it's market cap is $200.000.
Even though the individual coin price of Cryptocurrency B is higher than Cryptocurrency A, Cryptocurrency A's overall value is double Cryptocurrency B's.
Still, it's also important to note that many cryptocurrencies' market cap can swing dramatically due to their volatility.
What Can You Do With Market Cap?
Market cap allows you to compare the total value of one cryptocurrency with another so you can make more informed investment decisions. Cryptocurrencies are classified by their market cap into three categories:
Large-cap cryptocurrencies, including Bitcoin and Ethereum, have a market cap of more than $10 billion. Investors consider them to be lower risk investments because they have a demonstrated track-record of growth and often have higher liquidity — meaning they can withstand a higher volume of people cashing out without the price being dramatically impacted.
Mid-cap cryptocurrencies have market caps between $1 billion and $10 billion – they generally are considered to have more untapped potential upside but also higher risk.
Small-cap cryptocurrencies have a market cap of less than $1 billion and are most susceptible to dramatic swings based on market sentiment.
Market cap is a useful metric for comparing the total value of cryptocurrencies, but market trends, a cryptocurrency's stability, and your own financial situation all need to be considered when weighing the risks of any investment.
Bottom Line
Though market cap is widely used as a metric in trading, more information before making trading decisions is recommended. But this is only about what is market cap in cryptocurrency and this will not help in trading.
