What is the Market Cap in Crypto?

Comprehensive Analysis: Understanding Market Capitalization in Crypto

The value of a cryptocurrency It is often determined using the term "market capitalization." In essence, the term is simpler although it may seem complex. What does it mean and why is it essential? Let's analyze it.

Identify market capitalization

Fundamentally, market capitalization provides an overview of the total market value of an asset. The same formula applies when evaluating a cryptocurrency or the value of a company on the stock market:

Market capitalization is calculated as follows: Current asset price x Total assets in circulation

When it comes to cryptocurrencies, this refers to:

TO cryptocurrency market capitalization is equal to its current price multiplied by its total circulating supply.

Let's use a fictional scenario to clarify.

The market capitalization of a cryptocurrency called “CryptoCoin” would be €10 multiplied by the number of coins in circulation (€10 x 1,000,000 = €10,000,000) if CryptoCoin sells for €10.

This indicates that 10 million euros is the market capitalization of CryptoCoin.

What makes market capitalization important?

Stability indicator: A coin with a larger market capitalization is likely to be more accepted and therefore considered more mature and stable.

Risk assessment: It is a tool used by investors and traders to evaluate the risk-reward ratio. Cryptocurrencies with larger market caps are often thought to be less dangerous than those with smaller market caps.

Liquidity Indicator: Coins with higher market capitalization generally have more liquidity, making it easier to buy and sell.

Trend analysis: Tracking changes in market capitalization over time could reveal information about likely price fluctuations and the state of the market as a whole.

Cryptocurrency market capitalization:

Although the fundamental calculation is simple, there are complications in understanding the market capitalization of cryptocurrencies.

Comparison of circulating supply with total: Not all tokens can be exchanged for others. Some may be reserved, closed or not available yet. Therefore, we typically take into account the circulating supply of market capitalization rather than its overall supply.

Market capitalization domain: As of January 10, 2024, the ratio of Bitcoin market capitalization The total market capitalization of cryptocurrencies was less than 50%. This indicates that Bitcoin's influence over the entire cryptocurrency market has recently declined.

Volume and market capitalization: It is essential to take into account market capitalization and trading volume. Insufficient trading volume and large market capitalization can be signs of insufficient liquidity, making it more difficult to buy or sell without changing the price.

Cryptocurrency ranking by market capitalization

It is common to hear phrases like "Large Cap", "Mid Cap" and "Small Cap" in the world of cryptocurrencies. Its market capitalization serves as the basis for these divisions:

Long cape: Digital assets with a market valuation of more than 10 billion dollars. For example, USDC, Tether (USDT), Ethereum (ETH), and bitcoin (BTC). They are considered more trustworthy.

Midcap: Digital assets with a market capitalization ranging from $1 billion to $10 billion. Litecoin (LTC), Cardano (ADA), Dogecoin (DOGE) and Polygon (MATIC) are some examples. Large caps are less risky than these, but may have greater growth potential.

Small cap: Digital assets with a market value of less than $1 billion. Immutable X (IMX), Axie Infinity (AXS), and Aave (AAVE) are some examples. They offer the potential for big profits, but can also be riskier and more erratic.

The risks of using market capitalization exclusively:

Although market capitalization is an important indicator, it can be misleading to base investment decisions solely on it. This is the reason why:

Market volatility: Cryptocurrency values ​​and market capitalizations can fluctuate rapidly.

Price manipulation: Cryptocurrencies with smaller market caps may be more vulnerable.

Neglecting other crucial elements: Focusing solely on market capitalization can cause one to ignore other essential elements, such as the project's technological solutions, adoption rate, and level of competition.

Conclusion:

For traders, investors, and cryptocurrency fans, market capitalization is an essential instrument. Instead of serving as the sole criterion for making decisions, it needs to be used in conjunction with other research instruments. Make sure you have a thorough understanding of the cryptocurrency field, keeping in mind that market capitalization is subject to sudden fluctuations due to the volatile nature of cryptocurrencies. It is imperative, as always, to conduct thorough research and consult with financial experts before making any investment decisions.