Tuesday, June 28, 2022

What Is Market Cap In Crypto

Why Is Market Cap Important In Crypto

What is a Crypto Market Cap?

Cryptocurrencys value is measured not only by its price. Market cap gives you a more complete view and helps you compare value across cryptocurrencies. It indicates the growth potential of a cryptocurrency and whether it is safe to buy, compared to others. Market cap is an important indicator of coin relevancy.

How To Calculate Crypto Market Cap

Current price refers to the price in which a particular coin is trading at during said point in time. Meanwhile. circulating supply refers to the total quantity of Bitcoins currently being circulated in the market hence the name.

For example, lets say that Bitcoin is currently trading at $1000 per token and the circulating supply stands at 1000 coins. Multiplying $1000 x 1000 coins gives us a total market capitalization of $1,000,000.

It is extremely important to note that an assets market cap does not provide an indication of an assets liquidity or any inflows of cash.

This is especially obvious in the cryptocurrency market where extreme volatility can create or destroy billions of dollars worth of market cap at any time.

Given how Bitcoin valuations have gone through the roof in recent months, it has become commonplace for any sudden price changes to send investors scrambling.

Another point to note is that market capitalization should not be equated to the amount of fiat currency that has actually been invested in cryptos. Here are the reasons why:

There is a clear disconnect between crypto market cap and the actual amount of cash in the market. So why is that market cap so relevant to cryptos?

Which Is The Best Cryptocurrency To Invest In

CoinMarketCap does not offer financial or investment advice about which cryptocurrency, token or asset does or does not make a good investment, nor do we offer advice about the timing of purchases or sales. We are strictly a data company. Please remember that the prices, yields and values of financial assets change. This means that any capital you may invest is at risk. We recommend seeking the advice of a professional investment advisor for guidance related to your personal circumstances.

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Identifying A Desirable Crypto

A desirable cryptocurrency is one that persuades investors that its future will turn out even better than its history charts. Just as gold often serves as the standard for the precious metals market, the crypto community tends to look to Bitcoin as the standard-bearer. As the value of 1 BTC rises, so does Bitcoins market cap.

On January 1, 2015, the price of BTC was hovering around $320 and the market cap was at $4.32 billion. In just five years, both of these numbers would rise, with the price rocketing to $7,196 and the market cap reaching over $130 billion. Today the figures are up to nine times as high over $60k for 1 BTC. Regardless of how attractive a given crypto project may be investors like to mull over the use cases of various coins and tokens the cryptocurrencys market cap increases in proportion to a fairly low supply and a high value for each coin.

For novice investors, simply looking at the market cap can help one avoid the most common pitfalls and increase the chances of success. Although crypto influencers should always be viewed with a healthy dose of skepticism, theres a reason why they mention market cap so frequently: its one of the most reliable and useful pieces of data an investor can rely on.

Crypto Market Cap Below $2 Trillion

Crypto Market Cap Evolution and Comparison to Traditional ...

Bitcoin, the biggest crypto by market cap, has dipped below $36,000 in the past few hours. The crash followed a brief fakeout in which the price surged above $43,000 but dropped back down to $41,000 extremely quickly. This shows that investors are still unsure of the market direction, and traders are rather holding the horses.

The strong psychological support of BTC at $41,000 collapsed and prices fell below the $40,000 mark for the first time in months. As a result, the price temporarily fell below $36,000, which was the lowest Bitcoin price since late July, the bottom of the major spring correction. All cryptos followed the same course of action, and all cryptos lost an average of 20% in the past few days.

On the other hand, the equity market also suffered a lot. Many hedge fund managers started reassessing their portfolios. Anticipation of a lower market is expected, as the uptrend was extended for more than 1 year now. Additionally, looking at the previous market trend of both cryptos and equities, we can see that an adjustment was overdue.

Fig.1

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How Is It Calculated

The price refers to the current value of a coin at any given moment. The circulating supply is the number of coins or tokens that are already minted and publicly available to trade. Circulating supply is not the same as maximum or total supply.

Maximum supply shows the finite number of how many coins will ever be issued. Total supply includes the number of coins that were created but later removed from circulation or are still reserved by the founders and thus publicly unavailable.

Publicly unavailable coins are not in circulation and thus have no effect on price. This is why the circulating supply metric is used to calculate the coins current market cap.

Example:

A piece of apple pie costs $5. There are only 10 pieces of apple pie, as it is cut this way. The market cap of the apple pie = $50.

A piece of cherry pie costs $3. The cherry pie is cut into 20 pieces and thus its market capitalization is higher at $60.

What Can You Learn from That?Despite the higher price of each piece of apple pie, the market capitalization of cherry pie is higher. This indicates that it is more valuable and successful than apple pie.

What Affects A Company’s Market Capitalisation

It’s worth noting that a company’s market capitalisation tends to be higher than its assets’ value . This is primarily because any business is primarily an idea, and its assets are just tools for its implementation. Accordingly, the actual price of an active, established business includes the value of its assets and the potential profit it can make in the future.

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What Is Market Cap In Crypto And How Do You Calculate It

The market cap for cryptocurrencies is calculated in much the same way: by multiplying the number of tokens in circulating supply by the market price. The big difference, though, is that investors cannot analyze a cryptocurrencyâs financial statements for clues on its future growth rate. Thatâs because cryptocurrencies arenât companies and do not produce that type of fiscal dataâtheyâre alternative assets that dwell outside the conventional financial system.

What Does Market Cap Depend On

Why is Market cap important in crypto ?

When it comes to cryptocurrencies, market capitalization is entirely dependent on changes in the exchange rate and the activity of market players. The total amount of crypto remains pretty much unchanged.

Given the fact that the capitalization of cryptocurrencies depends on exchange rate, we can say that the level of demand also affects it. The more actively people are interested in a particular digital currency, the higher are its value and capitalization. In particular, the cost of crypto assets is defined by such aspects as:

  • activity of large players on exchanges
  • innovative technologies in the field of crypto
  • opinions of authoritative people, conclusions of analysts, experts, financial influencers, etc
  • regulations that govern the status of Bitcoin and other cryptos
  • news regarding virtual coins.

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What Is Crypto Market Cap And Why Is It Important

Blog » What is crypto market cap and why is it important?

2020 has been a wild year for cryptocurrencies and it looks like the ride is only going to get wilder. Bitcoin is clearly on the tip of everyones tongue at the moment, having hit an all-time high of $58,000 recently.

Now with crypto markets going through a correction, investors are understandably concerned with the direction of things. Cryptos such as Ethereum, Dogecoin, Litecoin, Bitcoin Cash and XRP have also taken a hit.

In the midst of all this chaos, the term market capitalization appears to be continually brought up. Everywhere you look, youll see analysts citing how Bitcoin or some other crypto has lost or gained a particular amount of market cap.

You ask yourself, what is market cap and how does it actually affect my investment? Should you be concerned about the market cap of your chosen crypto investment or is this just another fancy term thrown around by analysts trying to look smart.

To find out more about crypto investments read this article from our blog.

If youve asked yourself those questions, then youve come to the right place. In this article, well take a look at market capitalization, its relevance to crypto assets, and whether market cap is a good measure of value.

Along the way, well list the top 5 cryptocurrencies by market cap and discuss their most pertinent points.

So, lets get started.

Why Do You Need To Know A Cryptocurrency’s Market Capitalisation

Cryptocurrencies’ market capitalisation is a vital crypto market indicator that investors and traders should monitor. As with the stock market, a cryptocurrency’s market capitalisation affects its volatility. The higher the market cap of a coin is, the more difficult it is to manipulate its price. To influence the price of Bitcoin, you need to buy or sell hundreds of millions of dollars of it. At the same time, cryptocurrencies with low market caps often experience price spikes.

Although even cryptocurrencies with very high market caps have higher volatility than stocks, their price is still much more stable than that of cryptocurrencies with a low market cap.

In addition, the market cap of a cryptocurrency strongly influences its recognition and, as a result, its adoption. Cryptocurrencies with the highest market cap are much more frequently mentioned in the media and much more accepted as a means of payment.

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Why Is Market Cap An Important Metric For Cryptocurrencies

Driven primarily by speculation, cryptocurrency valuations are hard to read. Even the movements of widely held tokens such as Bitcoin largely remain a mystery. But by factoring in circulating supply, crypto market cap is a more thorough measure of a tokenâs value than its price alone. Thatâs why investors use the metric to assess a tokenâs potential, especially in lieu of the many financial variables available in the stock market.

Thatâs where it gets tricky. In this case, Ethereum did recently undergo a major upgrade to improve its functionality. The Ethereum blockchain also supports an app thatâs captured the imagination of investors: non-fungible tokens, or NFTs, which enable artists and other creators to fashion unique digital images with certificates of ownership. Understanding these developments can help investors put Ethereumâs market cap increase in context. In a market as hard to read as crypto, thatâs valuable.

What Is Market Capitalisation

Bitcoins market cap flipped Tencent on its way to $1 ...

Initially, the concept of market capitalisation originated in the stock market. After cryptocurrencies became a separate class of exchange-traded assets, the concept of market capitalisation began to apply to them, as well. In general, market capitalisation refers to the total value of any asset present in the market. Since there’s a difference between the concept of market capitalisation in the stock market and the crypto market, we’ll take a look at each of them individually.

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What Affects Crypto Market Cap

Mirror, mirror on the wall, which coins will have the largest market cap of them all?

In addition to crypto news websites, thereâs a good chance that youâve spent some time lurking among the various Reddit crypto communities, where there never seems to be a shortage of questions about any given coinâs present or future market cap. Take this one from the Cardano community, for example :

The commenter is right. A $4 trillion market cap for Cardano does indeed seem âa bit high.â If it were to happen, then Cadanoâs market cap would be almost twice as large as Appleâs, the company with the highest market cap in the world. The question being asked isnât necessarily whether Cardanoâs market cap will rocket to the moon , but rather what actually affects market cap.

What Is Market Capitalization

Definitions of market cap are all fairly standard and uniform. Investopedia describes it as âthe total dollar market value of a companyâs outstanding shares of stock,â which, as they note âis calculated by multiplying the total number of a company’s outstanding shares by the current market price of one share.â

Calculating a cryptocurrencyâs market cap is based on a similar logic, but with a key difference. Instead of using the number of outstanding shares, a coinâs market cap is calculated by multiplying the total number of coins that have been mined by the price of a single coin at any given time.

The most widely used website to obtain market cap information is CoinMarketCap, which provides a range of metrics related to cryptocurrencies.

Coinmarketcap.com

When consulting CoinMarketCap, itâs important to keep in mind that the listed prices are calculated according to the volume-weighted average of all the prices from different exchanges. Itâs also worth noting that some crypto watchers will make a distinction between circulating supply and fully diluted supply. In the case of Bitcoin, the magic number in terms of its fully diluted supply is 21 million, the point at which no further coins will be mined.

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What Is Cryptocurrency Market Cap

When checking the live prices of cryptocurrencies on websites like Coinmarketcap, you can also see a cryptocurrencys market capitalization. So what is that crypto market capitalization?

The cryptocurrency market cap is the total market value of a cryptocurrency. The higher the crypto market capitalization, the larger the share that a cryptocurrency has on the total market.

Coinmarketcap also shows you the total crypto market capitalization of all the cryptocurrencies circulating in the market.

As of April 2021, the total crypto market capitalization is around $1,9 trillion.

Since Bitcoin is the largest cryptocurrency in the world, it holds the largest market capitalization compared to other cryptocurrencies. Holding roughly more than 50% of the total market capitalization, the Bitcoin market cap is around $1,09 trillion.

Shows The Value Of Crypto

What Is Market Cap? | Crypto Explained | Cryptocurrency For Beginners

Similar blockchain projects may have completely different market caps. Despite the fact that they operate in the same field or solve the same problems, their value differs.

Like stocks, cryptos can be divided into 3 categories according to the size of market capitalization: large-, medium- and small-cap coins. Knowing the size of market capitalization allows us to compare different projects.

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What Is A Stablecoin

Price volatility has long been one of the features of the cryptocurrency market. When asset prices move quickly in either direction and the market itself is relatively thin, it can sometimes be difficult to conduct transactions as might be needed. To overcome this problem, a new type of cryptocurrency tied in value to existing currencies ranging from the U.S. dollar, other fiats or even other cryptocurrencies arose. These new cryptocurrency are known as stablecoins, and they can be used for a multitude of purposes due to their stability.

Ethereums Market Cap To Exceed $20 Trillion

As for Ethereum, ARK analysts expect its market cap to surpass $20 trillion. This would put the price of Ethereum at around $170,000 per ETH. The report notes that smart contracts, which Ethereum is predominantly home to, are starting to overtake traditional financial solutions. The cryptocurrency is also primed to bag a big chunk of the $123 trillion global monetary supply.

According to our research, Ethereum could displace many traditional financial services, and its native token, Ether, could compete as global money, the analysts wrote.

ARK also cited Layer 2 solutions that have come to be a popular alternative for mainnet transactions after gas fees on the Ethereum network went through the roof.

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What Is The Total Market Cap Of The Cryptocurrency Market

Total market capitalisation is the aggregate value of all crypto assets in the market combined, including Bitcoin and all altcoins. This indicator is important because it indicates the industry’s size as a whole and often serves to compare the entire cryptocurrency market with other economic sectors, such as precious metals, stocks or individual fiat currencies.

Increased Regulation In 2021

The Total Cryptocurrency Market Cap Grew By More than 3.3x ...

The rise in the popularity of cryptocurrencies and their adoption by financial institutions has led some governments to assess whether regulation is needed to protect users. The Financial Action Task Force has defined cryptocurrency-related services as “virtual asset service providers” and recommended that they be regulated with the same money laundering and know your customer requirements as financial institutions.

In May 2020, the Joint Working Group on interVASP Messaging Standards published “IVMS 101”, a universal common language for communication of required originator and beneficiary information between VASPs. The FATF and financial regulators were informed as the data model was developed.

In June 2020, FATF updated its guidance to include the “Travel Rule” for cryptocurrencies, a measure which mandates that VASPs obtain, hold, and exchange information about the originators and beneficiaries of virtual asset transfers. Subsequent standardized protocol specifications recommended using JSON for relaying data between VASPs and identity services. As of December 2020, the IVMS 101 data model has yet to be finalized and ratified by the three global standard setting bodies that created it.

The European Commission published a digital finance strategy in September 2020. This included a draft regulation on Markets in Crypto-Assets , which aimed to provide a comprehensive regulatory framework for digital assets in the EU.

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