Many investors may use the market capitalization of a cryptocurrency to compare the value of one coin with another. Since cryptocurrencies are a constantly changing market, calculations for multiple currencies might need to be done. This blog post will help you calculate the market capitalization of one cryptocurrency. Many experts are relying on a term, namely market capitalization in order to evaluate the growth of the crypto industry. You may see the term referenced as an approach used to rank cryptography networks in a similar way. It is valuable to be aware of a currency's market cap in order to understand its status within the marketplace. This will also help you decide how best to invest in the crypto industry. Crypto market capitalization is one of the many ways to read the crypto market. It can be like Fundamental Analysis and Technical Analysis. So without wasting time let's get started with today's blog.
What Is Crypto Market Capitalization?
Market capitalization is the value of a cryptocurrency. It is based on the total supply of coins multiplied by the price of each coin. It enables you to gauge how valuable a cryptocurrency is in comparison to other digital currencies. There are different ways that you can calculate market capitalization for different digital currencies. This is because each cryptocurrency has a different supply of coins. It is not a concept exclusive to the cryptocurrency sector. You will find it in conventional financial markets too. Despite this, there is a considerable disparity between these two figures Why is market cap is even important?
When it comes to gauging the value of a financial asset, one of the common methods is by using market capitalization. The same method is now being used in identifying the value of altcoins in cryptocurrency marketplace. Market capitalization gives you an insight into how much money is being invested in any digital currency. This can work out as a vital point to consider when you want to put your money into any specific crypto coin. There are two key components that make up the market cap. These are supply and demand. As a key statistic, the number of transactions per day for a cryptocurrency can indicate its growth potential and whether it’s safe to purchase. To demonstrate, Let’s compare two imaginary cryptocurrencies 1. If Cryptocurrency X has 300,000 coins in circulation and each coin is worth $1, it’s market cap is 300,000. 2. If Cryptocurrency Y has 90,000 coins in circulation and each coin is worth $2, it’s market cap is $180,000. Even though the individual coin price of Cryptocurrency B is higher than Cryptocurrency A, Cryptocurrency A’s overall value is double Cryptocurrency B’s. Still, it’s also important to note that many cryptocurrencies’ market cap can swing dramatically due to their volatility. How to Calculate Individual Crypto Market Cap? Currency market cap can refer to a set of cryptocurrencies or blockchain projects with a certain market value. First, Bitcoin (BTC) is the most popular cryptocurrency globally. Currently, the crypto market cap of Bitcoin is $1,060,527,958,492. In other words, the total valuation of Bitcoin has already surpassed one trillion dollars. Ethereum (ETH), which is abbreviated as $208,472,933,290, comes second to Bitcoin. The Ethereum project is a cryptocurrency which has been gaining ground and support in the crypto space. How to calculate the market cap of any cryptocurrency? Crypto market capitalization = supply of crypto assets in circulation x the value of an individual unit. Permit me to determine the marketplace value for Litecoin, a highly prizable alternative to Bitcoin. When the article was written, one Litecoin cost $201.50. It is insinuated that there are 66,643,162 Litecoins which are current in the world today. Therefore, the market cap of Litecoin would be the cost of a single Litecoin multiplied by the total number of Litecoins in circulation. When multiplying these numbers, we get the total figure of Litecoin market cap: $1.3 trillion.
How To Calculate Total Crypto Market Cap? All the assets of the crypto market are taken into account when calculating total market capitalization. The total crypto market capitalization is the gross total of all cryptocurrency assets. This includes Bitcoin, Ethereum, altcoins, digital tokens, and stable coins. and other major/minor crypto assets. In the crypto industry, all coins have a market value. These market values are then added up to find the total crypto market capitalization. You can expect that this would always be a shifting number. Even a minor change in cryptocurrency pricing can have a major impact on the total market cap. As of writing, the current entire market cap is $1.7 trillion. Nevertheless, by the time you read this article, the figure might be quite different.
Is there any problem with crypto market valuation? The cryptocurrency market is not as liquid as conventional stock markets. There are few barriers to entry and there’s no decentralized exchange. Even though market cap is important for any business, it has its own shortcomings. You should know that a lot of the time when you hear about a cryptocurrency’s market cap, there’s a very high chance you can see inaccurate figures. That is mainly because the crypto space is full of speculative trading and this leads to volatility in pricing. For example, the market cap of Ripple rose by a staggering $0.4 billion and is now double bitcoin’s market cap. One of this can be attributed to the BTC price rising and Ripple value increasing. Some of these inflated values are based on speculation and there’s no way to prove that since the two aren’t available in the same currency (precise numbers). In addition, as the cryptocurrency space evolves, new cryptocurrencies are entering the market with all sorts of different values. How can you use market cap to your benefit? Market cap helps investors to compare the value of different cryptocurrencies. Cryptocurrencies are divided into 3 categories: 1. Large cap cryptocurrencies, such as Bitcoin and Ethereum, have a market cap of more than $10 billion. Investing in stocks with a track record of growth is considered to be lower risk because they typically have higher liquidity — High-performing traders can withstand a higher volume of people cashing out without the price being dramatically impacted. 2. Mid cap cryptocurrencies have market caps between $1-10 billion– they are frequently thought to have more potential to rise but also bigger risks involved. You will require a lot of research foremost to purchase the digital currency here. 3. Small-cap cryptocurrencies have a lower price per coin. There market cap is less than 1 billion which means dramatic swings in the market are more likely.
Conclusion:
In this article, you got the principal understanding of crypto market capitalization, how to calculate it, and why it’s so important. Ultimately, at the end of the day, cryptocurrency market cap is a useful tool for evaluating the overall health of this rapidly emerging industry. Cryptocurrency market cap has been rapidly increasing over the past few years. It will be interesting to see if that trend will continue in 2021 and beyond.