In crypto, the real value of a cryptocurrency is derived from the cryptocurrency market cap. Some mistakes the value of a crypto coin by its price; however, it’s not correct. So what is Cryptocurrency Market Cap? The real value of a crypto coin is a product of the total number of coins in the market and the current price. You can check the market cap of any cryptocurrency from coinmarketcap.
The crypto market cap is similar to that of stock market cap used by investors and analyst to know the total worth of the company. The stock market capitalization is calculated by multiplying the total number of current shares with the current price of a share. In cryptocurrency, the market cap is also referred to as circulating supply often.
- So the formula of the crypto market cap is:
- Total number of coins* Current price of the coin
Now, let’s know more about cryptocurrency market capitalization and how it can help you in making the right decisions for crypto investment.
How To Calculate Cryptocurrency Market Cap?
So, now that you know what is Cryptocurrency Market Cap and how to calculate it? Let’s take the example of Bitcoin, its market supply is 18,287,662 BTC, and the current price of each coin is $6,615.48 USD. So if we multiply its market supply and current price, the market capitalization of Bitcoin will be $120,981,591,300.
The second-largest cryptocurrency according to its market cap is Ethereum which has a circulating supply of 110,255,002 ETH and the price of per coin $14,921,400,326. As you can see, the circulating supply of Ethereum is much more than that of Bitcoin’s, but as the price of per Bitcoin is 48 times more than the price of one Ethereum, Bitcoin is still the leading cryptocurrency in terms of Market Capitalization.
So, it’s not the price of per coin that decides the value of currency individually but the product of the cost and circulating supply. Another example that can justify this statement is of Tether and Bitcoin Cash.
If you’ll check on coinmarketcap the market cap of both the cryptocurrency is almost the same. However, there’s a massive difference in the price of both the coins as the value of per Bitcoin Cash (BCH) is 223 times more than the value of per Tether (USDT) coin. It is because the circulating supply of tether is more than Bitcoin cash.
Why Is Cryptocurrency Market Cap Important?
Market capitalization tells us about the risk involved in a particular stock or cryptocurrency. The larger the market cap, the less it would be risky for the investor. However, those coins with small-cap have more potential for growth and can provide investors with high returns.
Cryptocurrencies are categorized broadly as small-cap, mid-cap and large-cap. Cryptocurrencies like Bitcoin, which have a large-cap present less risk to the investor but have less growth potential.
Altcoins with small-cap are risky to invest in but can offer tremendous rewards to the early investors if succeeded.
Furthermore, you can calculate the market cap of the entire sector by adding the market cap of each cryptocurrency. To calculate the market cap of all the companies in the industry, including that of technology, manufacturing, etc., first, calculate the market cap of each company and then add them up. This will provide you with the market cap of the entire sector.
Large Cap or Small Cap, Where To Invest?
As mentioned above, Bitcoin has the largest market capitalization of all cryptocurrency in the market. Going down in the list, you will see cryptocurrencies with mid-cap and then those having around $50,000,000 are the ones with small-cap. Although there are high risks involved when investing in these altcoins, there’s more room for growth here. If you can determine which of these small-cap altcoins can provide you as much returns as that of Bitcoin, you can benefit highly by investing in these cryptocurrencies.
If you are considering to invest in cryptocurrency, make sure you don’t depend on market cap entirely. Even, the market cap of a coin doesn’t say anything about its future growth or whether it would provide you benefits or not.
While some cryptocurrency limits the total supply of the coin, others create a significantly large amount. Although inflation in the supply of coin decrease the value of the currency, short supply can’t be equated to high price. A fixed supply of the coin only guarantees one thing, which is that the variation in the market cap is due to its price.
You can’t determine whether the coin would be successful or not by its market cap, but it does help in revealing the market trends from time to time.
What is the Actual Formula of Cryptocurrency Market Cap?
Another factor that impacts the market cap of a currency is the number of dead coins. Dead coins are the lost coins that cannot be accessed or used or say are frozen. For example, when someone loses access to the private keys, wallets, dead coins are formed. Dead coins are also created due to bugs in the code. These coins are not counted in the market capitalization of the currency because they are no more of use. So, the actual formula of Cryptocurrency Market Cap would be total circulating coins minus dead coins multiplied by the current price.
However, there’s no specific way to find out the actual number of deal coins.
Cryptocurrency market cap is one of the many tools to determine the value of a coin in the long term but cannot be used individually. If you are planning to invest in cryptocurrency, knowing what is Cryptocurrency Market Cap won’t be enough. You need to do thorough research and consider all the important metrics to determine the value of a currency. Obtain complete information about the projects you are interested in and keep in mind all the risks associated with the market.
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