What Is the Cryptocurrency Market Cap? Why Is It Important
Admin 06-Mar-2021

What Is the Cryptocurrency Market Cap? Why Is It Important

Cryptocurrency Market Capitalization is a useful metric to learn the monetary value of cryptocurrency; a coin’s market cap is calculated by multiplying the total circulating supply of the coin by its price. At times cryptocurrencies are ranked in terms of their market cap. These measures can also be seen in stock and financial assets. It can be said that Market Cap is more meaningful than its price. It can hold vital information allowing both traders and investors to gain proper insight into the asset’s value.

Meaning of Market Cap

Market Capitalization is the product of the circulating supply of a cryptocurrency and its current price. It is an important metric in the world of cryptocurrency which is used in ranking these digital assets as per size.

Marketing cap = Circulating supply x Current Currency Price  

It can be used to show the potential growth a token has, rather than the price. The price per token is low and this doesn’t mean the coin is an undervalued gem. In case the price is low, the market cap will be low then the token has a lot of growth potential. The situation can be reversed where if the price is high and the market cap is high there might be a low potential for growth.

Let’s take an example

A block Geeks coin, 300 000coins were placed worth $2 each. The market cap of the Geeks coins will be $600 000.

Another block Geeks coin was released, 50 000 coins were released and worth $4 each. The worth of the market cap is $200 000.

Even though these block geeks coin two are worth twice as much as the original block geeks coin’s market value cap is lower. Hence, there is more chance for it to grow. The low price makes more space for its growth. While in the case of another the price value is high there is less space for its fluctuation.

The Risk & Reward

Risk and reward are market cap assets. The larger market cap assets will fall less than small ones in other words volatility can often be tied to the size of an asset's market cap most times. To gain more by investing in a small-cap asset but also to lose more this is where the concept of diversification comes from a share of money can be placed into larger caps with fewer volatile assets.

The remaining share of risker money can be put towards the smaller cap volatiles assets this allows for the possibility of gaining from some of the explosive growth that small-cap assets can be prone to. While sheltering a portion of your investment in the less volatile large-cap assets.

The biggest nodus is with Market Cap and cryptos is that with their time they have lost a fraction of themselves. At times of trading or in situations when people who trade lost their wallets with some amount of crypto are lost forever. So before making any final decision it is important to do research work. 

Market Cap of Bitcoin

Bitcoin is considered the number one cryptocurrency. They were created on August 18, 2008, by Satoshi Nakamoto. It is ranked the highest cryptocurrency in terms of market cap. It has recently hit the mark of $280 billion. The price of bitcoin is $15000. The reason it is known as the superior of all cryptos is that it exceeds $112 billion where the second cryptocurrency is Ethereum whose market value is $20 billion.

The growth of Bitcoin is very high indeed that it exceeds some big companies in the US. It took over some major cities like Salesforce, Coca-cola, Bank of America, Disney, and Adobe. Although it will require a lot before it catches up with JPMorgan Chase, Mastercard, and Visa.

Comparison Between Price and Market Cap for Calculating Value

For trading, each value of the coin needs to offer information and the price is unidirectional. However, it doesn’t reflect the true value or scarcity of an asset. Even if a commodity or service is available or not determined by its demand and supply equation. Market cap is considered insight into digital currency’s value. There are many examples in real life which proves that one cannot gain an understanding of the full story just with price information. There is a need to have good research.

Drawbacks of Market Cap

Market Cap has a lot of potential in itself. It has an excellent metric for ranking cryptos. As they say that all good things have loopholes, Market Cap is a direct result of the inherent imperfection in circulating supply.

As it just reveals the picture of the total value of the circulating supply of its total value at its current market price. We cannot understand the cumulative crypto investment from its market cap. It is easy to get fluctuated, even with a small number of trade drastic changes made for illiquid cryptocurrency. The result of this situation will be that it can bring a spike in the price of cryptos and then to the market cap. The mining of coins also affects the price and market cap.

The risk and rewards are a part of an investment. Market cap is a clear picture of investment risk and reward at a certain level in particular crypto. All coins with a small market cap, whenever a piece of big news hits market caps are prone to price fluctuation. A coin is resistant or vulnerable to price volatility and it reveals highs and lows of market cap. A supply of coins can drastically change the circulation of supply, even though it is considered as the best metric of ranking coins holding a comparison of their overall value.

 

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