Market Capitalization: How Crypto Market Cap Works
Calculating a cryptocurrency project’s market capitalization is relatively straightforward.
While most enthusiasts will analyze the market capitalizations of specific projects, keeping an eye on the big picture can be more advantageous.
Even though Bitcoin and Ethereum have the highest market capitalizations, the total value of all crypto assets is far bigger.
All of the leading cryptocurrency data aggregators report the overall crypto market capitalization, making it reasonably straightforward to keep track of this measure.
But, what does all of this means? And what can we discover about the market using this information?
Let’s read on.
Looking to learn more about the basics of Crypto? Check out our Crypto terms every investor should know.
What is Crypto market capitalization?
The market capitalization of a cryptocurrency is its total value.
Unlike stock market capitalization, which is determined by multiplying the price of a share by the number of shares outstanding, crypto market capitalization is derived by multiplying the price of a cryptocurrency by the number of coins in circulation.
For example, the market capitalization of Bitcoin is calculated by multiplying the current number of coins in circulation – over 18.8 billion — by the price of Bitcoin at the time.
Bitcoin’s market capitalization swings as its price fluctuates, which it does regularly.
Bitcoin’s price has fluctuated between $33,000 and $44,000 in recent weeks, resulting in a substantial market capitalization range:
- 18.8 million tokens x $45,000 = $620 billion
- 18.8 million tokens x $50,000 = $752 billion
- 18.8 million tokens x $55,000 = $827 billion
Here’s how Ethereum compares to Bitcoin in terms of market capitalization: As of 2022, Ethereum has a market capitalization of roughly $220 billion, with a price of $1,819.21 and a circulation of about 121 million coins.
Keep in mind that even though far more Ethereum coins are in circulation, Bitcoin’s market valuation is higher.
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What Does Cryptocurrency Market Cap Mean for Investors?
Knowing a company’s market capitalization in the stock market assigns it to three investment categories: small cap, mid-cap, or large-cap.
Keep in mind that large-cap stocks are often less risky but slower-growing than mid- or small-cap stocks.
Understanding the market cap is crucial because an investor may choose to divide their investment into various groups for various reasons.
The market capitalization of a firm indicates how much it is worth, and this value may be one way that reflects how risky it can be to invest in it.
Cryptocurrency, on the other hand, is a relatively new concept. These categories have yet to be developed because the technology is so new.
There’s also less need to consider market cap when making investment decisions because some experts recommend sticking to Bitcoin and Ethereum and not letting crypto account for more than 5% of your whole portfolio.
If you want to grasp the extent or potential of a particular token, it may be tempting to look at the cryptocurrency market cap. You should also consider investing in a crypto wallet that you trust.
Market capitalization isn’t often used in crypto trading, but it might help you manage your Bitcoin and Ethereum investments. Still, it shouldn’t play as significant a role in your investment decisions as it may in the stock market.
Related: HOW TO INVEST IN CRYPTO (WITHOUT BUYING CRYPTOCURRENCY)
What is the Total Crypto Market Capitalization?
The entire market cap is the total value of all crypto assets on the market, including Bitcoin, altcoins, stablecoins, tokens, and other cryptocurrencies.
Many people value this indicator since it represents the industry’s overall size.
Since 2013, the total crypto market cap has increased.
The value of cryptocurrencies tends to fluctuate a lot because of the relatively high volatility of the cryptocurrency markets.
The overall market capitalization of cryptocurrencies never exceeded $20 billion throughout the first six and a half years. It has been moving up and down in the hundreds of billions from its previous peak of $770 billion in 2018.
Does the Crypto Market Cap Change Daily?
Cryptocurrency market capitalization does not fluctuate daily. It is determined by multiplying the current cryptocurrency price by the total amount of cryptocurrency in existence.
If Bitcoin is worth $10 and there are 15 million coins in circulation, the market capitalization is $150 million.
Because no new bitcoins are created every day, it does not change daily.
What is the Significance of the Overall Crypto Market Capitalization?
The combined crypto market capitalization is frequently used to compare different areas of the economy.
Many experts, for example, frequently compare the whole crypto market capitalization to the market capitalization of precious metals or stocks.
Why would they do something like that? Well, it can offer them a general idea of where the overall crypto market might expand in the coming years and decades.
In the end, no one knows how to evaluate cryptocurrencies and blockchain projects in a precise and error-free manner. While these comparisons can be instructive, they should not be accepted as accurate.
Trying to compare different financial markets is generally fruitless. Other types of investors are attracted to various industries.
Cryptocurrencies are a new and fast-growing investment option that should be regarded as such.
Related: HOW TO DIVERSIFY YOUR CRYPTO PORTFOLIO: BEST STRATEGIES
One of the most important variables to keep an eye on is the market capitalization of cryptocurrencies. It displays the ups and downs of the entire cryptocurrency industry’s valuation.
It’s also helpful to know the difference between what’s being reported now and what the diluted market cap could be in the future.
At the same time, additional indicators must be taken into account. The market capitalization is only one part of the puzzle.
Before making any financial obligations, you should examine other sector elements that play an important role.
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