Cryptocurrency is a soaring industry, and it wouldn’t be wrong to say that there are highly complicated terms to understand. One such term is the market cap, which is defined as the total dollar value of the company’s stocks shares, and when it comes down to cryptocurrencies, the market cap is defined as the total number of coins that are mined.
In the cryptocurrency market, the market cap is calculated by summing up the total number of coins mined by the single coin’s price, irrespective of the time.
In addition, the market cap can be defined as the rough measurement or gauge for determining the stability of the asset and how it’s likely to be used.
It is important to understand that even the biggest cryptocurrency (Bitcoin) is prone to vulnerability and volatility.
However, when the cryptocurrency with a higher market cap is concerned, it is likely to become a stable investment as compared to the cryptocurrency with a small market cap (you can take the example of a big ship that has better chances of navigating through severe weather conditions).
On the other hand, cryptocurrencies with a small market cap are highly likely to be more susceptible to market whims, and they can be used for witnessing significant gains and losses in the wake.
On the sideline, there are high chances that you will witness associating with circulating supply as well as fully diluted supply.
When it comes down to Bitcoin, around 18.5 million Bitcoins have been mined, known as circulating supply, or you can utilize 21 million Bitcoins that will be mined, known as fully diluted supply.
Respecting the methodology, some observers are likely to calculate the market cap with the current circulating supply but some of them also calculate it with respect to the fully diluted count.
Having said that, it’s quite evident that market cap is a complicated process, and we are sharing more information on the matter to help you grasp better conceptualization.
Importance Of Market Cap
When it comes down to measuring the value of cryptocurrency, price is the only way. This is because investors tend to utilize market cap for telling the complete and 360-degrees story while comparing and contrasting the value across different cryptocurrencies.
It wouldn’t be wrong to say that the market cap signals the potential of growth of a specific cryptocurrency and determines if it is safe to purchase as compared to other cryptocurrencies.
To help you out, we are sharing more insights into the market cap of two different cryptocurrencies, such as;
- For instance, if the A currency has 40,000 circulating coins and every coin is around $1, the market cap will be $400,000
- On the other hand, if the B currency has 100,000 circulating coins and every coin is for $2, the market cap will be $200,000
It is clear that the individual price of the B cryptocurrency is higher as compared to A cryptocurrency, but the overall value of A cryptocurrency is 2x higher as compared to B cryptocurrency.
However, it is still important to understand that the market cap of the cryptocurrency can fluctuate, given the volatility and market fluctuations.
What Can Be Done With Market Cap?
To illustrate, the market cap allows the users to compare the total value of a cryptocurrency with a different cryptocurrency, so you can end up making more informed and definite investment decisions. When it comes down to the cryptocurrencies, they are classified into three categories, respective to the market cap, such as;
● Large-Cap Cryptocurrency
It includes Ethereum and Bitcoin, and other huge cryptocurrencies open account. In simpler words, these cryptocurrencies have over $10 billion of market cap and are termed as the low-risk investment because they have a better growth record and boast higher liquidity. Also, it means that these cryptocurrencies can tolerate excessive cashing out without significant price impact.
● Mid-Cap Cryptocurrency
These cryptocurrencies are known for their market cap ranging from $1 billion to $10 billion. The mid-cap cryptocurrencies are known to have higher untapped potential, but there is a higher risk.
● Small-Cap Cryptocurrency
These cryptocurrencies have lower than $1 billion and are prone to dramatic fluctuations, depending on the market
The Bottom Line
On a concluding note, the market cap is a beneficial metric for contrasting and comparing the total value of different cryptocurrencies but don’t forget to consider your financial situation, market trend, and stability while you are weighing the potential of your investment.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect those of Geek Vibes Nation. This article is for educational purposes only.
Robert Griffith is a content and essay writer. He is collaborating with local magazines and newspapers. Robert is interested in topics such as marketing and history.