What Does Market Capitalization Mean in Crypto?
The term “market capitalisation” is used in the stock market to describe the total market value of a company’s outstanding shares.
It’s very similar in the cryptocurrency world, except that cryptos don’t represent equity in a company like stocks do. The market cap of a coin is simply the sum of all available coins at the current price per coin. Imagine cashing out every Bitcoin in existence at the same time. That is the market capitalisation.
At the time of writing, the market capitalisation of Bitcoin is 18,330,762 BTC X $7200 = $132 billion. This is also known as the total value of bitcoin. This can also be referred to as the total value of bitcoin. You can do the same math for Ethereum or Solana.
Fortunately, sites like CoinMarketCap and CoinGecko list all cryptocurrency market caps in real time, saving you the time of manually crunching the numbers.
There is also the total Crypto Market Cap, which is the sum of the market capitalisations of all cryptocurrencies. As crypto adoption grows, this figure has risen to more than a trillion dollars.
What can you do with market cap?
Market cap compares the total value of one cryptocurrency to another, allowing you to make more informed investment decisions. Cryptocurrencies are divided into three categories based on their market capitalisation:
- Large-cap cryptocurrencies, such as Bitcoin and Ethereum, have a market cap of more than $10 billion. Investors consider them to be lower risk investments because they have a proven track record of growth and often have higher liquidity — meaning they can withstand a higher volume of people cashing out without significantly affecting the price.
- Mid-cap cryptocurrencies have market caps ranging from $1 billion to $10 billion, and they are generally viewed as having greater unrealized upside potential but also higher risk.
- Small-cap cryptocurrencies have a market cap of less than $1 billion and are most vulnerable to market sentiment swings.
While market cap is a useful metric for comparing the total value of cryptocurrencies, other factors, such as market trends, the stability of a cryptocurrency, and your own financial situation should be taken into account before making any investment.
Circulating Supply vs. Market Cap
Circulating supply is all of the coins that are currently in circulation, or available to users. Coins may have a very high circulating supply but still have a low market cap. Ripple, for example, has a circulating supply of 44 billion XRP but a market cap of only $8.4 billion since each XRP is only $0.19.
What Cryptocurrency has the Biggest Market Cap?
With a market cap of around $132 billion ($320 billion at its peak), Bitcoin is valued at the same level as public companies like Visa, Johnson & Johnson, and IBM.
What Are the Altcoin Market Caps?
There are several Bitcoin alternatives, known as “altcoins,” that have developed huge followings. Except for altcoins, altcoin market cap is the same concept as Bitcoin. Here are the top five as of the time of writing:
- Ethereum comes in second with $19 billion (110.5 million circulating supply X $172/ETH).
- Ripple is third at $8 billion (44 billion circulating supply X $0.19/XRP).
- Tether ranks fourth at $6.4 billion (6.4 billion circulating supply X $1/USDT).
- Bitcoin Cash ranks fifth with $4.3 billion (18.3 billion circulating supply x $234/BCH).
How Does Market Capitalization Affect Altcoins?
Market cap is the primary indicator of total value. When an altcoin has a high market cap, it is typically viewed as more reliable, based on the assumption that more people have invested in that cryptocurrency, whereas those with a low market cap are viewed as speculative, new, and less reliable cryptocurrencies.
Altcoin market cap is an important measure against Bitcoin for industry adoption. If it is lower than Bitcoin, it indicates that altcoins are receiving less attention and investment. Lower altcoin market capitalisation also indicates less activity on their respective platforms and applications. The opposite is also true.
Is High Market Cap Good or Bad?
A large market cap is certainly beneficial to the individual cryptocurrency, but it is not always beneficial to investors. Small market cap coins may have much more room for growth than bigger coins. Meanwhile, Bitcoin is so important for cryptocurrency in general that whenever its total market cap reaches new all-time highs, it tends to drive up all altcoins.
Are Coins with Small Market Caps Risky?
As a general rule, yes. However, when Amazon first went public, it was valued at less than $500 million mcap, and Apple was valued at just over $100 million mcap – so finding Small Market Cap (also known as smallcap) coins/companies can be a really good way to get in early on the next big thing. This causes a lot of speculation in small caps, with the majority of them failing to pan out, but then there are the long shots that become large caps or even mega caps, such as Amazon and Apple.
Can Market Caps Be Manipulated?
Yes. Market caps can be manipulated by manipulating coin prices. This is common in small cap coins with low active trading volume and circulating supply, making it simple for someone to manipulate the price up or down with a few thousand dollars.
Are Coin Market Caps the Same as Stock Market Capitalisation?
No. The formula is the same, but that is the only thing in common. The stock market capitalisation reflects the company’s equity value, or how much ownership is worth. This has far-reaching implications for attracting new business, credit, and operations. Coin market capitalisations do not reflect equity in the company because they are coins rather than shares, which means they have no legal attachment to the company and are thus more like currencies.
What Are Other Important Factors Besides Crypto Market Capitalisation?
Aside from market capitalisation, there are several other factors that influence cryptocurrency. Small-cap coins tend to outperform their larger counterparts because they have more room to grow. Here are some metrics to consider when it comes to cryptocurrencies:
Price
While it’s a component of Market Cap, it has its own implications.Lower-priced coins, such as Ripple, can move more in % terms than higher priced coins such as Bitcoin, simply because the $ difference is much smaller, so investors perceive it differently.
Active Trading Volume
Lower prices can make an asset more prone to manipulation, but this also depends on active trading volume. The greater the volume, the more accurately it reflects the coin’s “real” value.
Circulating Supply & Max Supply
Circulating supply is the total amount of coins currently available to users, while Max Supply is the maximum amount of coins that will be available to users in the future. For Bitcoin this is the well known amount of 21 million. These two factors are important because if a coin has a low circulating supply relative to its maximum supply (for example, XRP has a 44b circulating supply compared to a 100b maximum supply), it becomes risky for investors because this uncirculated supply may flood the market in the future, causing prices to crash.
Volatility
This is a component of all the above factors. The greater the volatility, the less circulating supply, the lower the active trading volume, and the lower the price. Volatility can be beneficial or detrimental depending on your risk and return objectives.
