What is Market Capitalization in Crypto?
Market capitalization, also referred to as market cap or Mcap, is a metric used to calculate a cryptocurrency’s value and market size. It is calculated by multiplying the total number of coins or tokens in circulation by the current market price of each individual coin or token.
The market cap indicates the dominance, popularity, and value of a cryptocurrency. Cryptocurrencies with larger market caps are usually more popular and dominant in the market, such as Bitcoin and Ethereum.
Why is Market Cap Important?
Market capitalization is used by investors to gauge and track the value of a cryptocurrency. The market cap, along with other metrics like market trends and market sentiments, is a common measurement that traders use to consider which cryptocurrencies are worth investing in. Other key indices like market volume and liquidity are also essential in determining the performance of a cryptocurrency.
Cryptocurrencies are categorized into large-cap, mid-cap, and small-cap groups based on their market cap size. Large-caps are cryptocurrencies that are in the top 10 by market cap. They are well-established, with market capitalizations of $10 billion or more. They are comparatively less volatile and have more liquidity as compared to other groups. Examples include Bitcoin and Ethereum.
Mid-cap cryptocurrencies are assets in the top 10-50 cryptocurrencies by market cap. They have MCap between $1 billion and $10 billion. They have more growth prospects than large-caps, but also experience more volatility and risk. Litecoin and Algorand are both mid-cap.
Small-cap cryptocurrencies are those with relatively small market capitalizations, typically below $1 billion. These are usually less established cryptocurrencies that may not have the same level of adoption or recognition as large-cap cryptocurrencies. They may have more potential for growth than large-cap cryptocurrencies, but they also carry a higher level of risk due to their lack of stability and track record.
The market cap of a cryptocurrency determines its stability and growth potential. Investors can use the market cap to determine whether to invest in a coin for stability or potential.
How to Calculate Crypto Market Cap
To calculate the market cap of a coin, multiply the number of circulating coins by its market price.
- Token A has a circulating supply of 10,000,000 and a market price of $3.00
- 10,000,000 X 3 = 30,000,000
- Ergo, the market cap is $30,000,000