Key Takeaway
Market capitalization refers to the current market capitalization of a crypto or a blockchain network, just as it does for stock markets and blockchain projects in general. Equally significant is the total market capitalization of the entire crypto sector. In a sense, it can also be used as an estimate of the total value of the entire blockchain and crypto sector.
Introduction
The process of calculating the market capitalization of the crypto project is straightforward. While most enthusiasts will likely compare the market caps of individual crypto projects, monitoring the overall market capitalization is also beneficial.
The total market capitalization of all crypto assets exceeds the total market capitalization of Bitcoin and Ethereum, even though they are the two largest projects based on their individual market capitalization. The total crypto market cap is reported by all the leading crypto data aggregators, so it is relatively straightforward to track.
Crypto Market Capitalization – Definition
Market cap, also known as market value, is the current market capitalization of a crypto network. It is calculated by multiplying the volume of a crypto asset in circulation by the price per individual unit.
Let's take a look at the market capitalization of two different cryptos: MyNeighborAlice (ALICE) and Happy Birthday Coin (HBDC).
My NeighborAlice has a total supply of 100,000,000 ALICE tokens, with 67,913,333 ALICE currently in circulation. At a current price of $1.04 per token, its market cap is calculated as follows:
ALICE Market Cap = 67,913,333 × $1.04 = $70,599,999.72
On the other hand, Happy Birthday Coin (HBDC) has a total supply of 7,700,000,000 HBDC tokens, with 15,635,420 HBDC in circulation. Each HBDC is priced at $0.001644, giving it a market cap of:
HBDC Market Cap = 15,635,420 × $0.001644 = $25,686.68
Despite HBDC being significantly cheaper per token compared to ALICE, its market cap is still lower due to the smaller circulation and lower price. That’s why market capitalization is a better measure of a network’s worth than the price of a single coin.
Total Crypto Market Capitalization – Definition
The total market capitalization (TCC) is a measure of the total value of Bitcoin, Altcoins, Stablecoins, Tokens, and all other crypto assets on the market. This metric is considered by many to be a measure of the overall size of the crypto industry.
The value of cryptos is subject to significant fluctuations due to the high volatility of the markets. In the first six-and-a-half years of crypto's existence, the total market cap never exceeded $20 billion. After reaching a peak of $770 billion in early 2018, the value has since fluctuated within the hundreds of billions.
Necessity of Total Crypto Market Capitalization
The combined crypto market capitalization is frequently used as a benchmark for comparison with other industries in the broader economy. For instance, many analysts compare the total crypto market capitalization to the market capitalization of precious metals or listed securities.
It is important to note that there is no consensus on the most accurate way to evaluate the value of crypto and blockchain initiatives. While these comparisons can be beneficial, they should not be relied upon blindly.
Comparisons between financial markets are often an exercise in futility. Different industries draw different kinds of investors. Therefore, crypto will not necessarily be attractive to stock, foreign exchange, or precious metal traders. As a new and rapidly expanding asset class, cryptos should be considered as such.
Uses of Market Capitalization
Market cap compares the total market cap of one crypto to another to help you make better investment decisions. There are three types of cryptos based on their market cap:
Large-cap cryptos:
Cryptos with a market capitalization of over $10 billion are known as large-cap cryptos. These include Bitcoin and Ethereum. Large-cap cryptos are viewed by investors as lower-risk investments due to their demonstrated growth potential and higher liquidity, which allows them to withstand a greater number of transactions without significantly impacting the price.
Mid-cap cryptos:
Mid-cap cryptos are defined as those with a market capitalization of $1 billion or less and a risk-adjusted value of $10 billion or more.
Small-cap cryptos:
Cryptos with a market capitalization of less than one billion dollars are known as small-cap coins and tend to be the most volatile in terms of market sentiment.
While the market cap is a good way to compare the total market capitalization of cryptos, market trends, the stability of a crypto, and your financial situation are all factors that should be taken into account when determining the risks associated with any investment.
Concluding Remarks
One of the most important metrics to consider is crypto market capitalization. It shows the movement of the market cap across the entire crypto ecosystem. It can also help you differentiate between what is reported now and what the diluted market cap could look like in the future.
In addition, there are other factors to consider. The market cap alone is only one element of the equation. There are other factors to consider in the context of the industry before committing to any investment.
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Disclaimer: Any financial and crypto market information shared should not be considered investment advice. It is for informational purposes only. Conduct your own research before making investment decisions. Crypto trading is unregulated and highly risky. There may be no regulatory recourse for any loss of such transactions.
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