What is Cryptocurrency Market Capitalization? A Quick Look

Cryptocurrency market capitalization, short for market capitalization, is the total value of that cryptocurrency. It is calculated by multiplying the current price of the cryptocurrency by the circulating supply, i.e. the amount of coins available.

For example, let’s say  a cryptocurrency costs $100 and the circulating supply is one million coins. This translates to a market capitalization of $100 million. Since market caps are based on cryptocurrency prices, they are constantly changing.

Investors use market capitalization as a yardstick to measure both stocks and cryptocurrencies. The market capitalization of a publicly traded company is synonymous with its value. Indeed, it is calculated by multiplying the total number of shares of the company by the stock price.

Cryptocurrency, however, is not a business. And unlike stocks, digital tokens do not represent ownership in a company.

Stocks and cryptocurrencies make their market debut through public offerings; with the former, it’s through an initial public offering or IPO, and with the latter, it’s an initial coin offering or ICO.

More importantly, market capitalization helps gauge how investors view an asset’s prospects.

What is the overall market capitalization of cryptocurrencies?

Since 2020, the entire market capitalization of cryptocurrencies has varied between less than $200 billion and more than $3 trillion. Due to the volatility of cryptocurrencies, total market capitalization can fluctuate significantly, even from day to day. There were times when the cryptocurrency market lost more than $300 billion in just one day, as well as times when the market capitalization doubled in just a few weeks.

Cryptocurrency market capitalization explained

The overall cryptocurrency market capitalization gives investors an idea of ​​current market trends. A rising market capitalization indicates a bullish market, where people generally have a positive view of cryptocurrencies and more investors are buying or adding to their positions. A decrease in market capitalization indicates a bear market, where investors are more likely to stand firm or sell cryptocurrencies. The market capitalization for cryptocurrency is also a useful tool that can help investors evaluate the scale and stability of these projects. If you want to compare several cryptocurrencies, it is their market capitalization and not their price that will show you their value. In general, cryptocurrencies with larger market capitalizations tend to be more stable (although this is “more stable” by cryptocurrency standards, as they are still far from what one would consider top stable or low risk investment).

Regardless of how the cryptocurrency supply is distributed, the market capitalization formula is always the same. Divide the cost of each token by the total number of coins in circulation. In the case of Bitcoin, this would be: 

 Bitcoin (BTC) price is 21,661 USD x circulating supply of 19.102 million = about 414.2 billion USD

Each crypto asset has different ways of determining its supply. On average, 900 new bitcoins are mined daily until the total Bitcoin supply reaches 21 million. Therefore, there are daily fluctuations in market capitalization due to two factors:

 Changes in supply and buying or selling pressure

Cryptocurrencies that do not have a fixed supply, like Bitcoin, are subject to another factor:

Burning Mechanism: For example, Ethereum (ETH) releases approximately 6,400 ETH per day. However, this is opposed by the Ethereum fee burning mechanism, introduced by proposal EIP-1559. Burning tokens removes coins from circulation by sending them to dead wallets. Such wallets do not have  private keys, so funds cannot be recovered. Since January, 2,558,300 ETH have been burned. Therefore, we can add another market capitalization factor to this mix:

 Supply change + Token burning mechanism and Pressure to buy or sell 

Finally, we have cryptocurrencies created by companies with unlock schedules. For example, Yuga Labs launched ApeCoin (APE) with a total supply of 1 billion tokens. To create scarcity and maintain value, only 30.25% of  tokens will be released into circulation when they launch on May 17, 2022. The tokens will then be unlocked over a two-year period, according to an allocation determined by Yuga Labs. Given that 30% was offered at launch, there are 306.8 million ApeCoins in circulation at a price of $6.13 per coin, representing an ApeCoin market cap of $1.88 billion (as of August 2022). ApeCoin does not have a token burning mechanism so its market capitalization will be determined by utility.

Supply changes through unlock schedules and buying or selling pressure, largely depend on APE’s utility in Yuga Labs projects, such as the Otherdeed metaverse platform.

Now that we understand the different factors that determine a digital asset’s market cap, the question is: what else can the market cap  reveal? 

Market capitalization is an investment tool

It is important to understand how market value works in TradFi. In the case of stocks, market capitalization represents the value of a listed company. This all can be done and evaluated through BitNasdaq; it helps to know the value and hike of various digital currencies. This analysis of a company’s market capitalization and other metrics like price-to-earnings ratio can help investors determine whether a stock is expensive or overvalued or, conversely, cheap and undervalued. 

Other measures include:

  • Cash flow
  • Amount of  debt payable
  • Management achievements
  • Nature of the product
  • Competitive landscape of the same product type

Cryptocurrency market capitalization determines price fluctuations

Bitcoin is actually the only cryptocurrency that is not tied to a founder, organization or company. Although it was created by the mysterious Satoshi Nakamoto, no one knows who it is.

This means other crypto assets offer several data points for analysis. For example, every word of Ethereum co-creator Vitalik Buterin is scrutinized as if he were the founder and CEO of a Fortune 500 company. Likewise for Charles Hoskinson, Creator of Cardano and  co-founder of Ethereum.

Like sparsely traded stocks, some altcoins worth less than $3 billion have higher  volatility and larger fluctuations in market capitalization. Cryptocurrencies worth more than $10 billion tend to have high trading volumes, but they can also skyrocket a bit when it comes to  market value.

Determine your investment strategy based on the market capitalization of cryptocurrencies through BitNasdaq. 

Market capitalization to remember

After token price, market capitalization is often the first metric investors look at when evaluating digital assets. The reason is very simple:

This is the best way to evaluate how investors view the future of a project. You can say that this is a form of crowdsourcing where a lot of investors looked at the project and decided to go for it.

However, it is important to understand that while a cryptocurrency’s market capitalization indicates a certain level of legitimacy, it is only one metric among many to analyze  a project’s prospects. Conducting further research into digital assets is the wisest course of action.

How Can You Easily Cash Out Your Crypto Assets and Sell Bitcoin Instantly?

Best Cryptocurrency Exchange In India

6 thoughts on “What is Cryptocurrency Market Capitalization? A Quick Look”

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