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Market capitalization often referred to as “market cap” is one of the most important metrics used in assessing the success and stability of a cryptocurrency. This straightforward metric serves as a quick numeric denotation to help investors understand the potential of the cryptocurrencies.
However, understanding the concept of market capitalization in the context of cryptocurrency can be more complex than in traditional markets due to factors such as price volatility, supply in circulation, and technological updates.
In this article, we will break down what market cap is, how to calculate it, and what is the importance of it. If you are someone who is looking to invest in cryptocurrency or if you like to better understand the crypto market, this guide can help you.
What is Crypto Market Cap?
Market capitalization in cryptocurrency is the total value of all shares of a cryptocurrency. Simply put, it is the product of a coin’s current market price and the total number of coins in circulation. That is:
Market cap = Current price x Circulating supply
So, if we take the example of Dogecoin, the current value of one DOGE is $0.1012 and its market circulation is 145,719,186,384, making the market cap $14,746,7817 billion.
While the market cap can swing either way according to the market condition, the coins with huge market caps are likely to stay more stable than cryptocurrencies with a much smaller market cap.
Why Consider Market Capitalization?
You can see the dominance of a cryptocurrency just by looking at its value, so why use market cap as a metric? Well, the answer is a bit complex. Investors need security and would like to compare the potential of various cryptocurrencies before considering investing. Let’s see how the market capitalization can be better than just considering the value of a token.
Consider cryptocurrencies A and B. A is valued at $5 and it has 10,000 coins in circulation. At the same time, B is valued at $10 and the total number of circulating coins is 1000. In this case, by comparing the value of individual tokens, B is more valuable.
But comparing the market capitalization, A has a market cap of $50000, whereas B’s is just $5000 which is significantly less than A’s. In this case, even if a small portion of the investors of B bailout, the value will drop significantly, whereas it wouldn’t reflect that much in the value of A.
Explore More: How To Spot And Avoid Cryptocurrency Scams?
The Importance of Considering Market Cap?
Understanding market capitalization and how it matters can be essential for your journey through the cryptocurrency market. Here are some of the important aspects of considering market capitalization:
- Comparison: As we saw in the above section, considering the market capitalization of a cryptocurrency can make it easy to compare the potential of two different tokens.
- Risk Assessment: by understanding the market capitalization, investors can assess the risk profile of the currency.
- Liquidity indicator: Liquidity is the ease of trading the token for other cryptocurrencies or fiat currency. It is a common misconception that tokens with high prices can have high value. However, according to market trends, cryptocurrencies with high market cap are easier to trade on exchanges.
- Market Dominance: While it might not be always true, usually the cryptocurrency with higher market capitalization would have a higher market dominance and would be a better investment opportunity.
Variations in Market Capitalization
As mentioned in the earlier sections, market capitalization can also vary depending on the market conditions. Here are the things that can affect the market capitalization of a cryptocurrency:
Circulating Supply
The circulating supply of a cryptocurrency is the number of coins that are available to the public for trading. This excludes the tokens that are reserved or locked by smart contracts for rewarding the miners or for other purposes. The circulating supply changes when new coins are minted and mined.
Price of the Cryptocurrency
One other major factor that contributes to the variation of market cap is the price of each cryptocurrency token. The price per token and the market capitalization are directly proportional to each other, meaning that if one increases the other rises too, and vice versa.
However, if the market cap is high small variations in price per token might not affect the market capitalization significantly.
Market Demand
When the market sentiment towards a cryptocurrency is positive, more people start buying the tokens increasing the demand and driving up the price. So, naturally, the market demand is also reflected in the market capitalization of cryptocurrencies.
If you are interested in buying cryptocurrency, it is best to check the news, social media, and crypto communities, to check the market sentiment towards the token.
Volume of Trade
Trading volume is the number of tokens traded during a specific period usually in a 24-hour time. Although the volume of trade wouldn’t directly reflect market capitalization, usually cryptocurrencies with higher market cap have better liquidity and have higher trading volume.
Additionally, the cryptocurrency with lower trading volume is usually found to have a lower market cap and they tend to be more unstable in the market.
Cryptocurrencies with High Market Capitalization
Now that you have familiarized yourself with what cryptocurrency market capitalization is, why should consider it before investing in cryptocurrency, lets look at some of the top cryptocurrencies that have high market caps:
1. Bitcoin (BTC)
Market Cap: $1,168,039,218,404
Price: $59,151.48
Coins in circulation: 19,746,575 BTC
Trading volume: $37,263,109,516
(at the time of writing this article)
Bitcoin is the first functional cryptocurrency introduced to the market. Considering Bitcoin’s popularity, it is unsurprising that the currency is at the top of this list. For Bitcoin, the total supply is set at 21 million, and about 94% of the tokens are already in use.
2. Ethereum (ETH)
Market Cap: $1,168,039,218,404
Price: $2,524.47
Coins in circulation: 120,298,530 ETH
Trading volume: 18,491,875,584
(at the time of writing this article)
Ethereum is a blockchain platform that enables developers to build their smart contracts and decentralized applications (dApps). The cryptocurrency represented as Ether or ETH is the native token of Ethereum used as fuel in the Ethereum ecosystem.
3. Tether (USDT)
Market Cap: $118,120,473,525
Price: $1.00
Coins in circulation: 118,104,595,856 USDT
Trading volume: 64,999,244,955
(at the time of writing this article)
Tether is a stablecoin pegged to the US dollar. The coin is designed to hold a 1:1 value with the USD by implementing reserves. It acts as a USD alternative in the cryptocurrency market and minimizes the volatility of cryptocurrencies.
4. BNB
Market Cap: $78,778,651,440
Price: $539.82
Coins in circulation: 145,935,143 BNB
Trading volume: 1,807,151,885
(at the time of writing this article)
BNB is the cryptocurrency token developed by the global cryptocurrency exchange platform, Binance. The token has various utilities related to the Binance exchange including the payment of trading fees, transactions on the Binance Smart Chain, etc.
5. Solana (SOL)
Market Cap: $66,959,638,846
Price: $143.6
Coins in circulation: 466,272,442 SOL
Trading volume: $2,808,705,759
(at the time of writing this article)
Solana is another blockchain project like Ethereum. It is a high-performing blockchain platform with lower gas fees and better speed, making it the most popular ecosystem for DeFi, dApps, and NFT projects. SOL is the native token used in the ecosystem.
6. USDC
Market Cap: $34,516,663,465
Price: $0.9999
Coins in circulation: 34,521,072,808 USDC
Trading volume: $7,174,795,896
(at the time of writing this article)
USDC is another stablecoin that always has its value in a 1:1 ratio with the USD. stablecoins including USDC are a great payment option for cross-country transactions and even as long-term investments.
7. XRP
Market Cap: 32,073,027,795
Price: $0.5709
Coins in circulation: 56,180,094,752 XRP
Trading volume: $1,244,020,707
(at the time of writing this article)
XRP is the digital currency used for the Ripple network. It is designed to offer fast and low-cost international money transfers. Some financial institutions, banks, and a handful of retailers accept XRP as payment.
8. Dogecoin DOGE
Market Cap: $14,631,679,315
Price: $0.1004
Coins in circulation: 145,729,746,384 DOGE
Trading volume: $606,178,607
(at the time of writing this article)
DOGE is a literal meme that blew up into a big thing in the cryptocurrency market and gave birth to a whole new genre of cryptocurrencies, known as the “meme coins”. The token doesn’t have many utilities, but it has strong community support and is known for its low transaction fees.
9. Toncoin (TON)
Market Cap: $14,119,589,661
Price: $5.57
Coins in circulation: 2,534,764,990 ΤΟΝ
Trading volume: $1,393,114,016
(at the time of writing this article)
The Open Network, formerly, the Telegram Open Network is a blockchain platform developed for Telegram. Several applications work in this ecosystem. The blockchain uses Toncoin (TON) for transactions, operations, governance, and more.
10. TRON (TRX)
Market Cap: $13,775,919,040
Price: $0.1587
Coins in circulation: 86,804,248,523 TRX
Trading volume: $516,209,451
(at the time of writing this article)
TRON is another blockchain for creating decentralized applications. It enables the content creators to be the sole owner of their creations cutting down the middle-man. TRX is the native cryptocurrency of TRON used for transactions in the network.
Also Read: How To Read And Interpret Crypto Whitepapers?
Conclusion
Understanding the concept of market capitalization is essential for investors and even crypto enthusiasts. It can help you compare the potential of cryptocurrencies. By knowing what the market capitalization is, you can make an informed decision about your investment.
This guide has explained the concept in detail and has described why it is important. So, next time you are looking for a cryptocurrency investment opportunity, do not forget to consider the market capitalization of the asset.
