Cryptocurrency market capitalization is a basic, clear approach to determining the size of a digital currency — and it can help you make better investment decisions.
For stock market investors, market capitalization can be a significant aspect. But it’s not quite the same for cryptocurrency investors. Although stock market capitalization — the total value of a company’s total shares of stock — might assist investors in developing and maintaining a well-balanced investment portfolio, experts argue same guidelines do not apply to crypto investors. Here’s what cryptocurrency investors should know about market capitalization and how it should (or should not) impact your strategy.
What Is the Total Market Cap?
The overall market cap combines market data from a variety of cryptocurrencies, including Bitcoin, Ethereum, XRP, and EOS, to provide a more complete, real-time picture of how the crypto asset sector is performing.
Another key indicator to monitor, particularly with cryptocurrencies, is total supply. Cryptocurrencies, such as Bitcoin, have a limited circulating supply, which means that no more than 21 million coins will ever exist. Others have a significantly larger quantity of coins (see at you, XRP, with a supply of 1 billion).
Coins with a greater total supply are typically priced substantially lower. Aside from the value of their blockchain technology, scarcity is a driving element in the value of a cryptocurrency. For example, BTC has an all-time high of $20,000, whilst Ripple’s record is only $3.84.
When considering the enormous number of cryptocurrencies available, you should rely on market capitalization rather than coin price. Because each coin is worth hundreds of times more, it may be tempting to believe Bitcoin Cash is superior to XRP. However, BCH has a crypto market cap that is one-third that of ETH.
The quantity of coins available to the public, known as circulating supply, isn’t the only way to calculate a crypto market cap. Calculating the total supply is one option (factoring in assets that might be locked up or reserved).
Another consideration is maximum supply. Market capitalization is computed here by multiplying the price of a cryptocurrency by the maximum number of coins that could possibly exist. (This can be tricky.) A bigger circulating supply will not only affect the price of cryptocurrencies, but some altcoins have no upper limit.)
Concept of Coin Market Capitalization
The whole value of a cryptocurrency is defined as its market capitalization. Whereas stock market capitalization is measured by multiplying the share price by the number of shares outstanding, crypto market capitalization is derived by multiplying the cryptocurrency’s price by the number of coins in circulation.
Why is entire crypto market capitalization important?
The total crypto market capitalization is frequently used as a benchmark against other economic sectors. Many experts, for example, frequently compare the entire crypto market cap to the market value of precious metals or stocks. Why would they do such a thing? It can, however, provide them with an approximate estimate of where the total crypto market may expand in the coming years and decades. Despite this, no one knows the optimal method for estimating the value of cryptocurrencies and blockchain projects. These comparisons can be informative, but they should not be relied on uncritically.
It’s often pointless to compare different financial markets. Different types of investors are drawn to different industries. Cryptocurrency will not appeal to stock traders, foreign exchange dealers, or precious metal speculators by default. Cryptocurrencies are a new and rapidly growing asset class that should be addressed as such.
What Does the Cryptocurrency Market Cap Mean for Investors?
In the stock market, understanding a company’s market capitalization categorizes it as small-cap, mid-cap, or large-cap. Knowing the market cap is crucial because an investor may choose to divide their investment into various groups for a variety of reasons. The term “market capitalization” is frequently used to describe how much a company is worth, and this value might be reflected in how risky it is to invest in the firm. Large-cap equities are typically less hazardous but grow at a slower rate than mid- or small-cap companies.
However, cryptocurrency is relatively new. These types of categories haven’t yet been developed because the technology is so new. And, because experts advise sticking to Bitcoin and Ethereum and not allowing crypto to account for more than 5% of your whole portfolio, there is less need to consider market cap when making investing decisions.
Knowing the bitcoin market cap is useful if you want to understand the breadth of the potential of a particular token, but it should not be as important in your investing decisions as it is in the stock market. “It’s really crucial to know that cryptocurrency is absolutely different from the stock market,” explains Jully Alma-Taveras, the personal finance expert behind “Investing Latina” on Instagram. “It’s an entirely different world.”
How to Use a Crypto Weighted Market Cap Strategy
A weighted market cap strategy entails investing a proportionate amount in each asset based on its market capitalization. So, if you add up the total market capitalizations of Bitcoin and Ethereum, then divide the percentages each crypto holds in that total, you’ll get roughly 71 percent Bitcoin and 29 percent Ethereum.
This method can assist you in determining how to invest $100 in the two most popular cryptocurrencies: $71 in Bitcoin and $29 in Ethereum.
Although the experts suggest you shouldn’t bother with other altcoins (anything other than Bitcoin), the same logic may theoretically be applied to whatever you want to include in your portfolio. Simply assign a fraction of your entire investment amount to each coin depending on its proportional market capitalization. At the very least, this ensures that you are investing significantly less in other cryptos and significantly more in the safer Bitcoin and Ethereum.
Is Crypto Market Capitalization an Important Metric?
There is great controversy over how much weight should be given to the size of the bitcoin market. Some analysts argued that it is an unpleasant legacy of the stock market, contributing to poor investing decisions and significant levels of anxiety and greed.
Crypto market caps, on the other hand, can provide us with a fact-based view of how cryptocurrencies are performing – a much-needed source of objectivity away from social media.
On CoinMarketCap, you can get detailed market capitalization information for cryptocurrencies ranging from Litecoin to Cardano, Binance Coin to Monero, and Tether to Tron. As blockchain technology and digital currencies gain traction, this can help you make informed real-time investment decisions about crypto assets.
Problems in the Cryptocurrency Market
There are numerous challenges surrounding the growth of cryptocurrencies, which are still in their early stages. It’s fun to think about the philosophical and political ramifications of cryptocurrencies. Cryptocurrencies are fundamentally political since they undermine society’s old “social contract.” Members of society implicitly agree to give up part of their liberties to the government in exchange for order, stability, and preservation of their other rights, according to this notion. Cryptocurrencies are governed solely by code because they create a decentralized form of money.
Crypto Market Capitalization Has Been Diluted
There are several methods for calculating market capitalization. The diluted market cap is one method for estimating a network’s future value. Let’s find out what it is. The phrase “diluted market cap” is derived from the stock market. This figure shows a company’s valuation in that sector if all stock options are executed and all securities are converted to stock. It’s also critical to consider a crypto asset’s current and future supply. At the moment, not all coins, tokens, and assets have their whole supply available.
This approach applies to all other crypto assets on the market. A diluted market cap essentially multiplies an asset’s current price by the greatest supply that will ever circulate. Given how the prices of various assets would change, it is far from a precise metric. It can, however, help to determine if an asset is undervalued or overvalued.
Cryptocurrency Market Size and Technology:
When it comes to coin market size and technology, there is a list of facts that are as follows.
- The cryptocurrency market cap is expected to exceed $1-2 trillion in 2018.
- Bitcoin has a market capitalization of more than $70 billion, with peak trading volumes of over $3 billion per day.
- CB Insights, a technology consulting firm, has identified 27 ways in which blockchain might radically transform processes as diverse as banking, cybersecurity, voting, and academia.
- According to the World Economic Forum, by 2027, blockchain technology will have stored 10% of global GDP.
- The majority of mining pools are in China, accounting for more than 70% of total Bitcoin mining. The majority of bitcoin mining equipment is manufactured in China, which takes advantage of the country’s low electricity prices.
One of the most significant factors to monitor is cryptocurrency market capitalization. It displays the ebb and flow of the cryptocurrency industry’s valuation. It can also be used to differentiate between what is being reported now and what the diluted market cap could be in the future.
Simultaneously, other criteria must be considered. Market capitalization is only one component of the puzzle. Other facets of the sector should be investigated before making any financial commitments.