Market capitalization (or market cap) refers to the total dollar market value of a company’s outstanding shares of stock. For crypto markets, market capitalization is calculated by multiplying the number of coins mined by the price per coin. Think of market cap as a rough indicator of a certain asset’s stability.
Even Bitcoin experiences volatility. Although cryptocurrencies with a much larger market cap have a greater chance of being a more stable investment than those with much smaller market caps. In contrast, digital currencies with smaller market caps are more prone to market fluctuations and can experience substantial gains as well as losses.
In some instances, you might see references to both “circulating supply” and “fully diluted supply” market caps. In the case of Bitcoin, you can use either the 18.5 million that have already been mined (“circulating supply”) or the 21 million that will eventually be mined (“fully diluted supply”). Observers use different methodologies to calculate market cap: some will use the fully diluted number or the circulating supply.
What can you do with Market Cap?
Market cap helps to compare the total value of one cryptocurrency with another for a more informed investment decision. Cryptocurrencies are divided into three categories based on their market capitalization:
Large-cap cryptocurrencies are generally regarded as safe crypto investments. These are companies with a market cap exceeding $10 billion. Coins with a large market capitalization are typically a conservative investment strategy. There is a likelihood that these coins will be less volatile than other cryptocurrencies, but still more volatile than traditional assets.
Mid-cap cryptos have higher volatility but also higher growth potential than large-cap cryptos.
Small-cap cryptos all have high volatility and are considered highly risky investments. ****They may, however, offer potential for short-term growth. It is also essential to keep in mind that they may crash at any moment.
It is always best to do thorough research before investing in cryptocurrencies and to consider all important factors.
Why is Market Capitalization important?
Market capitalization is a metric that measures and monitors the market value of a cryptocurrency. A cryptocurrency’s price is just one way to measure its value. Additionally, market capitalization can reveal trends. It provides a more comprehensive picture of cryptocurrency value, and it is used by investors to compare cryptocurrencies.
As a key statistic, it can indicate a cryptocurrency’s growth potential and determine if it is safe to buy in comparison to others. Nevertheless, it is important to note that the market cap of many cryptocurrencies can fluctuate dramatically due to their volatility.
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