Explained: Crypto Market Capitalization
What is Crypto Market Capitalization?
To get a clear understanding of what is generally known as Market Capitalization (Cap), we will define the basic terms.
Market Cap can be defined as the total value of all the shares of a company’s stock in dollars.
In terms of the cryptocurrency market, however, market capitalization or market cap refers to the total units of all the coins that have been mined which are calculated by multiplying the present market price of a particular token or coin by the total number of coins in circulation or mined.
Crypto Market Cap Formula
Coin market capitalization can be represented by this formula.
Market Cap = Present Coin Price × Circulation Supply
For example, if each unit of a Crypto token is being dealt at $100, and the circulating supply is equal to 50,000,000 coins, the market capitalization for this cryptocurrency would be $5,000,000,000.
The market cap offers some awareness and understanding of the performance and magnitude of a company or Cryptocurrency projects. It is necessary to note that it is not the same as a large amount of money, which does not signify how much money is in the market. This is a common mixup because the circulation of Market Cap is personally depending on the Price but in certainty, a fairly small difference in price may affect the Market Cap crucially.
Note from the previous example given, a few million dollars could possibly raise the Cryptocurrency Price from $100 to $150, which will cause the market cap to increase from $5,000,000,000 to $7,500,000,000 respectively.
Though there was an addition of $2,500,000,000 in the market cap, actually the amount of money needed to cause such a price increase is depending on the Volume and Liquidity.
What Affects Crypto Market Cap?
LIQUIDITY: The term liquidity can be defined as the ability to sell or buy an asset without causing big impacts on the market price. It is also related to how assets are converted to fiat currency easily. Crypto that is found difficult to convert is not liquid while the Crypto that can be exchanged is considered to be a liquid market.
A trader or investor may spot a particular Crypto to buy or sell at any given time, which means there is always an opposite party ready to trade
On the contrary, the Market Cap is not considered liquid, requiring the trader to wait before an order is executed.
VOLATILITY: These can be described as how swiftly and how much the price of a crypto asset changes. It is normally calculated in terms of standard deviations in the annual return of an asset over a set period of time. Volatility is a major course of action in the Crypto Market Cap. Due to their digital nature, they present a low level of regulation and market size.
Cryptocurrencies are far more volatile than any form of assets. In chuck, the higher level of volatility is accountable for the mass adoption and interest in Crypto investment, as it gives investors a huge opportunity to gain moreover a short period of time.
Simply put, a high volume and liquid market, can’t be easily controlled because there are numerous orders placed in the order book and perhaps a big volume of orders within the different sets of prices. This would result in a less volatile market, meaning that a whale would need a lot of money to crucially influence the price.
What Is Total Market Cap?
The total market cap takes in market statistics from a scale of cryptocurrencies which include Bitcoin, Ethereum, XRP and EOS to provide a filled and real-time picture of how the crypto asset sector is performing. Some research can be done on CoinMarketCap and other Market Cap, they do all the hard work for you, and also offer more features about trading volumes in 24 hours.
Another important benchmark to keep an eye on, for the most part with Altcoins is the total supply. Cryptocurrencies like Bitcoin have limits on their circulating supply, meaning there are no more than 21 million coins in existence. Others have a much greater number of coins looking at y XRP for example with a supply of 1 billion.
Coins with a larger total supply are usually less expensive. Apart from the value of their blockchain technology, scarcity tends to be a major factor in a cryptocurrency’s value. For instance, BTC has an all-time high of $60,000, while Ripple’s record is just $3.84.
Why Is Crypto Market Cap An Important Metric?
There is a lot of discussion about why much mass should be placed on the size of the Cryptocurrency market. Some detractors claim that it’s an uninvited heritage on the Stock Market. This has led to misplaced investment decisions and contributed to a considerable level of greed and fear.
However, crypto market Cap can also give us a certitude based on the performance of Altcoins.
From Litecoin to Cardano, Binance Coin to Monero, and Tether to Tron, you can find global details about Market Capitalization on price tracking websites for Cryptocurrency assets. This can help you make proper investment decisions about crypto assets in real-time as blockchain technology and digital currencies continue to gain Stream.