What Is Crypto Market Cap And Why Is It Important?
Traditionally, market capitalisation has been a term associated with companies that are traded publicly. One multiplies the number of shares outstanding with the price per share and arrives at the market capitalisation. Now, it is used for measuring the overall value of commodities, bonds and even cryptocurrencies. This article provides all the important details about the crypto market cap. Read on!
What is Crypto Market Cap?
In the stock market, market capitalisation is the total market value of all outstanding shares in a company. Similarly, the crypto market cap is the total value that you would arrive at if you put all the coins at their current price. If you wish to know the potential and scope of a particular token, a crypto market cap will play an important role. However, unlike the stock market, the crypto market cap doesn’t always affect an individual’s investing decisions. Note, that the crypto space differs entirely from the stock market. Now, let’s take a look at the importance of Crypto Market Cap.
Why is Crypto Market Cap Important?
Given below are the reasons why the crypto market cap is important:
- It reflects the entire picture of a crypto coin
- It helps in comparing the values of cryptocurrencies
- Crypto market cap also reflects the growth potential of a cryptocurrency
How is Crypto Market Cap Calculated?
Given below are the reasons why the crypto market cap is important:
- It reflects the entire picture of a crypto coin
- It helps in comparing the values of cryptocurrencies
- Crypto market cap also reflects the growth potential of a cryptocurrency
How is Crypto Market Cap Calculated?
The market cap for a coin is calculated as per the following formula:
Crypto market cap = Circulating supply X Unit price
Here, circulating supply stands for the total number of coins available for trade, while unit price represents the price of a single coin.
The calculation is illustrated below for Bitcoin (BTC):
The circulating supply of Bitcoin is around 19 million BTC, and the unit price is around $27,000 as of 12 May 2022.
Therefore, one can arrive at a market cap of Bitcoin by the following calculation:
Market cap of Bitcoin = 19 million X 27,000
So, the market cap of Bitcoin is $513 billion as of 12 May 2022.
Types of Crypto Market Cap
Crypto market cap enables investors to make informed decisions. They help in comparing the values of cryptocurrencies.
Based on the crypto market cap, cryptocurrencies can be classified as per the following categories:
Large-cap cryptocurrencies
Bitcoin and Ethereum come under this category. They have a market cap of more than $10 billion. Large-cap cryptocurrencies are lower-risk investments. This is because they have previously demonstrated a solid track record of growth. They also have higher liquidity, i.e., even if many people opt for liquidation, the price wouldn’t be dramatically affected.
Mid-cap cryptocurrencies
Their market cap ranges between $1 billion and $10 billion. Experts consider them to carry a lot of potential. However, they also have a higher risk.
Small-cap cryptocurrencies
Their market cap is less than $1 billion, and they are vulnerable to dramatic changes based on the market situation.
How to Use a Crypto Weighted Market Cap Strategy?
You can use a weighted market cap strategy if you wish to invest in Bitcoin and Ethereum.
As per this strategy, you must invest proportionally into each cryptocurrency based on the market cap.
Given below are the steps to use a crypto-weighted market cap strategy with respect to Bitcoin and Ethereum:
Step 1: Take the total market capitalisation of both Bitcoin and Ethereum
Step 2: Divide the total percentages that each crypto holds in the total market cap
Step 3: Suppose you end up with 71% Bitcoin and 29% Ethereum. This will help you determine how to invest your money in these two cryptos
Step 4: Suppose you wish to invest Rs. 10,000. You can use this strategy to invest Rs. 7,100 in Bitcoin and Rs. 2,900 in Ethereum
Also Read: Top 10 Cryptocurrencies In India To Invest In 2022
What Are Other Important Factors Besides Crypto Market Capitalisation?
The other important factors besides crypto market cap are discussed below:
Circulating supply and maximum supply
If a cryptocurrency has a low circulating supply compared to its maximum supply, investors find it risky to invest in that particular crypto. This is because the uncirculated supply may flood the market in the future and may give rise to the possibility of a market crash.
Volatility
Less circulating supply, low active trading volume and low price give rise to high volatility. Depending on the investor’s risk and financial objectives, it can be good or bad.
Price
This factor has its implications. Lower-priced cryptos can move more in percentage than higher-priced coins like Bitcoins. Therefore, investors consider it to be riskier
Active trading volume
Low prices indicate low active trading volume. A higher volume would reflect a high value of the crypto.
Final Word
Crypto market cap indicates the actual value of a cryptocurrency. Investors can make better decisions if they take the market cap of a coin into account while investing. The price of a coin, its active trading volume, volatility, circulating, and maximum supply are other important factors of a cryptocurrency.
If you are looking for investment options other than Crypto, visit Navi Mutual Fund and start investing today!
*Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
Also Read: How to Buy Cryptocurrency In India – A Step-By-Step Guide
FAQs on Crypto Market Cap
Ans: One can manipulate the market cap by manipulating the coin price. This applies to small-cap coins with a low active trading volume and circulating supply. These factors make it easy to manipulate the coin’s price with just a few thousand dollars.
Ans: Bitcoin has the largest market cap. It is at $455 billion, per an article dated 13 June 2022. At its peak, Bitcoin had the same market cap as public companies like Johnson & Johnson, Visa and IBM.
Ans: The term ‘coin’ denotes a cryptocurrency that can operate independently. The term ‘token’ refers to a cryptocurrency dependent on another cryptocurrency for its operations, i.e. a token uses another cryptocurrency as a platform.
Ans: Cryptocurrency transactions get recorded on a shared digital ledger called a blockchain. A blockchain is a digital and decentralised platform used to store all transactions. Blockchain technology enables participants to confirm transactions without permission from a central clearing authority.
Ans: Yes. According to research, around 2,000 cryptocurrencies have failed. Various reasons for failure include fraud, lack of financing at the beginning, during, and failure to evolve. Many cryptocurrencies failed in 2017-2018 during the initial coin offering boom.
Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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*Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
