Market Cap (Market Capitalization)
In a general analysis, the Market cap is nothing but a metric that denotes the total market value of a particular token, stock or commodity.
In the cryptocurrency realm, the market cap is determined by multiplying the total number of coins mined by the current price of a single coin.
(Market Cap = Current Price x Circulating Supply)
Take, for example, a particular crypto asset that is trading for $50. Let us imagine that the circulating supply of that coin is 100,000,000. The market cap of that cryptocurrency would be $5,000,000,000.
Market cap is a tool that helps to denote the stability of an asset in the market. A cryptocurrency with a higher market capitalization is more likely to be stable than one with a lower market capitalization. It is a key statistic that can help in making a decision on whether to buy or sell a cryptocurrency.
However, the market cap doesn't represent the value of the inflow of funds. The metric doesn't depict how much money is in the market because it is correlated with the price of the cryptocurrency.
For example, if the price of a coin increases from $50 to $100, the market cap will increase from $5,000,000,000 to $10,000,000,000. However, it doesn't mean that the particular coin experienced an inflow of $5,000,000,000.
Depending on the market cap, cryptocurrencies are also categorized into large-cap, mid-cap, and small-cap cryptocurrencies. Large-cap cryptocurrencies have a market capitalization of more than $10 billion. Mid-cap are those with a market cap between $1 billion and $10 billion. Small-cap cryptocurrencies have a market capitalization of less than $1 billion.
Key Takeaways
- The market cap is determined by multiplying the total number of coins in circulation by the current price of a single coin.
- Market cap is a tool that can denote the stability of an asset in the market and relative size compared to the other assets.
- The market cap doesn't represent the value of the inflow of funds.
- Cryptocurrencies can be categorized into large-cap, mid-cap, and small-cap cryptocurrencies depending on the market cap.
FAQs
What is the purpose of Market Cap?
Market Cap is used by investors and traders to measure the size of a cryptocurrency in terms of its relative market value.
How does Market Cap affect a cryptocurrency’s price?
Generally, the higher the Market Cap of a particular cryptocurrency, the higher its price. However, the price of a cryptocurrency or a token is also affected by its supply. A cryptocurrency which costs $0.01 per unit can have higher market cap then cryptocurrency which costs $1.0 per unit.
Why is Market Cap important?
Market Cap is important because it gives investors and traders an indication of the size of a particular cryptocurrency relative to other cryptocurrencies.
How is Market Cap different from Circulating Supply?
Circulating Supply is the number of coins or tokens available for trading (circulating among token holders) while Market Cap represents it's dollar value. You can caltulate it by multiplying circulating supply with the price of the token.
Can Market Cap be manipulated?
Market Cap can be manipulated through buying or selling large amounts of a particular cryptocurrency, which can affect the price and thus the market value.
What is Fully Diluted Market Cap?
The fully diluted market capitalization of a cryptocurrency is a representation of the total market value of the digital asset, counting in any tokens that may be issued in the future (Maximum Market Cap), based on the current market price. Read more about Fully Diluted Market Cap.
