What is Market Cap in Cryptocurrency?

In the crypto market as it is with the stock market, market cap is one of the most important terms to understand. The Crypto market capitalization is a measure of how much a given cryptocurrency is worth, and it's used to determine a coin's relative value. But what is a crypto market cap, how is the market cap calculated and how does it work? 

In this blog post, we'll explain everything you need to know about crypto market cap. We'll also provide some examples to help you understand the concept of market caps. So if you're new to crypto and want to learn more about a coin’s market cap, read on!

Market capitalisation for cryptocurrencies explained

What is market capitalization? The Stock market capitalization refers to the value of the total number of shares available for a company. In the cryptocurrency world, market capitalization, or "market cap," is used to refer to the total value of all the coins in circulating supply. This is a good term to understand when making investments in crypto.

So, if there are 100 million coins in circulation and each coin is worth $1, the market cap would be $100 million. Crypto market capitalization is a good way to compare different cryptocurrencies because it shows how much each one is worth in relation to the others and their current market price. 

The market capitalization of a cryptocurrency can be found by multiplying the price of each coin by the number of coins in circulating supply. For example, if there are 100 million coins in circulation and each coin is worth $1, the market cap would be $100 million. If there are only 10 million coins in circulating supply but each coin is worth $10, the market cap would be $100 million. 

Why is market cap important in crypto?

Market capitalization is a good way to compare different cryptocurrencies because it shows how much each one is worth in relation to the others. It can also give us an idea of how popular a cryptocurrency is and how widely used it is. 

For example, if a cryptocurrency has the biggest market cap, it is likely that more people are using it and that it is more widely accepted than a cryptocurrency with a smaller market cap. 

Market capitalization can also be used to measure the size of a particular cryptocurrency's economy. A large market cap, likely means that more transactions are taking place and that more money is being traded. This can give us an idea of how healthy a cryptocurrency's economy is. Whereas a low market cap may mean less supply and transactions are occurring.

What are the benefits of market capitalization?

A cryptocurrency’s market cap is a good way to compare different cryptocurrencies, as it shows how much each one is worth in relation to the others. It can also give us an idea of how popular a cryptocurrency is and how widely used it is. Market capitalization can also be used to measure the size of a particular cryptocurrency's economy. 

What are the drawbacks of market capitalization?

One drawback of market capitalization is that it does not take into account the different levels of supply and demand for each cryptocurrency. For example, if there are 100 million coins in circulation but only 10 million people are using them, the price of each coin would be lower than if there were 100 million people using them. 

Another drawback is that market cap does not necessarily reflect the actual value of a cryptocurrency. This is because the price of a cryptocurrency can be artificially inflated by factors such as media hype or speculation. 

What affects the crypto market cap?

There are a few different things that can affect the market capitalization of a cryptocurrency. One is the price of each coin. If the price goes up, the market cap will go up. Another is the number of coins in circulating supply. If more coins are released or mined, the market cap will go up. 

Another factor that can affect market cap is the level of supply and demand for a given cryptocurrency. If there is more demand than there is supply, the price of each coin will go up, and so will the market cap. However, if there is more supply than there is demand, the price of each coin will go down, and so will the market cap. 

Lastly, media hype and speculation can also affect the market capitalization of a cryptocurrency. If a cryptocurrency is getting a lot of media attention, more people may want to buy it, driving up the price and the market cap. Similarly, if there is speculation that a given cryptocurrency will rise in value, more people may buy it, again driving up the price and the market cap. This was witnessed in 2021 with the small cap cryptocurrencies like Shiba Inu.

What is the difference between market capitalization and total supply?

Total supply refers to the total number of coins that have been mined or created for a given cryptocurrency. Market capitalization, on the other hand, is the total value of all the coins in circulation. So, if there are 100 million coins in circulation and each coin is worth $1, the market cap would be $100 million. 

While total supply is a good way to measure how much of a given cryptocurrency is available, it doesn't give us an idea of how popular or widely used it is. Market capitalization is a better metric for this purpose. 

What is the difference between market capitalization and price?

Market capitalization is the total value of all the coins in circulation. Price, on the other hand, is the value of one coin. So, if there are 100 million coins in circulation and each coin is worth $1, the market cap would be $100 million. 

While price is a good way to measure how much one coin is worth, it doesn't give us an idea of the total value of all the coins. Market capitalization is a better metric for this purpose. 

How to calculate market caps of any cryptocurrency

Market capitalization is calculated by multiplying the price of each coin by the number of coins in circulation. So, if there are 100 million coins in circulation and each coin is worth $1, the market cap would be $100 million. 

To calculate the market cap of a given cryptocurrency, you will need to know the price of each coin and the number of coins in circulation. You can find this information on most cryptocurrency exchanges and websites. 

Once you have this information, simply multiply the price of each coin by the number of coins in circulation to get the market capitalization. 

For example, let's say that Bitcoin is currently trading at $10,000 per coin and there are 18 million Bitcoin in circulation. To calculate the market cap, we would simply multiply $10,000 by 18 million to get a market cap of $180 million. 

Similarly, if Ethereum is currently trading at $100 per coin and there are 100 million Ethereum in circulation, the market cap would be $10 billion. 

As you can see, the market capitalization of a cryptocurrency can be quite large. 

What is a good market cap for crypto?

There is no set answer for this question as it can vary depending on the circumstances. Generally speaking, a good market cap for crypto is one that is large enough to be sustainable and liquid, but not so large that it is unmanageable. 

In general, you want to look for a cryptocurrency with a market cap that is somewhere in the middle. Too small and it may not be sustainable, too large and it may be unmanageable.

Final Thoughts

So there you have it, a crash course in cryptocurrency market cap. This is definitely an area that is growing and changing rapidly and can get confusing, so make sure to do your own research before investing in any digital coins. And if this all seems a bit much for you, never fear! You can always dip your toe into crypto with Bamboo- a fun and easy way to start investing in Crypto.