Understanding Cryptocurrency Market Capitalization: What It Is

Cryptocurrency Market Capitalization helps you to make informed decisions on investments options on cryptocurrencies.

In Cryptocurrency Market Capitalization you will see the top cryptocurrencies, the Price of the currency, its market capitalization, 24-hour trade volume, supply, and change in %.

Most times, these features can be confusing especially if you are a newbie in the crypto world.

To help you interpret the information better for more informed decisions, we put together the information below.

Carefully go through it to understand what cryptocurrency capitalization is, and how to use it to make more informed decisions concerning investment and trading.

What is Market Capitalization?

Market Capitalization is simply the amount of Fiat Money (USD, EUR, NGN etc) invested into a cryptocurrency.

In terms of crypto coins, coin market capitalization is the total value of altcoins that have been mined. It is calculated by multiplying the total number of coins that have been mined by the price of a single coin at any stated time.

As the coin market capitalization number increases, the value of the cryptocurrency raises which means it is gaining more popularity. In simple terms, the coin market capitalization more or less reflects the popularity of a coin over a longer term.

Few altcoins are priced more than Bitcoin but they are not popular. This is why when you want to rank a coin, you don’t rank it based on its price, instead use Market Capitalization. Coin Market Capitalization is what determines the value of a coin.

From a trading perspective, that is if you are looking for coins with exponential growth that you can trade on. You must consider any Cryptocurrency market capitalization that is low with higher trade volume. Smaller market cap coins can easily double than coins with larger market cap. Consider Bitcoin price now which is $11,887 and its market cap is $200,069,545,325. For the Bitcoin price to double the market capitalization has to double which will take more time.

How is Market Capitalization Calculated?

Market Capitalization is calculated as = Price x Circulating Supply.

What is the Price of a Cryptocurrency?

The Price of Cryptocurrency is the amount of Fiat Money that you’ll need to buy a single coin or crypto token. Price is taken from the average trade price reported by each crypto exchange.

Price is calculated as = Market Cap / Circulating Supply

What is Circulating Supply?

Circulating supply is the third most important factor (aftermarket cap and volume) which you must consider before investing in crypto. In the Cryptocurrency world, there are 3 types of supply. Which are: Circulating Supply, Total Supply, and Max Supply. You must check each of the types of supply to calculate whether the coin has an infinite or finite supply. For there are currencies with Infinite supply and there are coins with finite supply (capped supply).

As a new starter in crypto, you may get confused, so we decided to make a separate explanation on Circulating Supply, Total Supply and Max Supply.

Circulating supply is the total number of coins that is currently in circulation which has been released to the public. Supply that is locked (total and max supply) will not affect the value of the coin and so circulating supply is the actual metric for determining the coin market capitalization. The more the circulating supply less the price of the coin. It works like the supply and demand waves in economics.

Total supply is the sum number of coins already mined, minus any coin that has been burned. Total supply refers to the number of coins currently existing, either in circulation or locked somewhere. For instance, coins that are being held under a lockup awaiting a Private Sale or Initial Coin Offering (ICO) event.

Max supply is the approximation of the maximum number of coins that will ever exist in the lifetime of a particular cryptocurrency. It means that when the max supply is reached, no new coin will be produced in any way either by minting or mining.

Volume – 24 Hour Trading Volume

Volume is the total number of cryptocurrencies that’s been traded in the last 24 hours. As a crypto trader, 24-hour coin volume is the second most important factor to consider when you are trading altcoins. When there is a pump going to happen for a coin then the first thing that starts showing is its Volume. The price follows as the volume of the coin goes up.

If the volume is more, it means the coin is active and more people started to show interest in buying and selling. It will be easy for you to trade (liquidate the coin) if the volume is more.

%24 hr Change

% 1hour, % 24hour, and % 7 days is just a ratio used to determine the profit and loss of a coin within that period. If this is green then there is a chance for the trade volume to increase.

What Determines the Price Of A coin in the Market Cap?

As you can see just like each Fiat Currency (USD, NGN) the value of each cryptocurrency also varies. Markets such as Forex, Commodity, and Stock are in no way different from crypto when it comes to determining the value. The price of cryptocurrencies is driven by two main factors such as supply and Demand. Less the supply more the demand.

Bitcoin is the very first cryptocurrency launched in 2009. Since then, it has gained too much popularity among the mainstream. Take this like Gold, Silver, and Diamond. The more the popularity, the more Fiat money invested. This leads to an increase in net worth and value.

How Can You Use Market Capitalization?

Market capitalization enables you to compare the value of a cryptocurrency to another to make a better decision.

You can use it to make an informed decision by understanding its three categories. Which are:

Large-Cap Cryptocurrency: Bitcoin and Ethereum have a cryptocurrency market cap of more than $10 billion. Both coins are being considered to have a low risk of investment. That because of the strength of their market cap, massive cash outs without affect it greatly. As a trader that wants to make money, coins with large market caps take time to increase in price., because, for the price to double, the market cap must double.
Mid-Cap Cryptocurrency: Coins that have their cryptocurrency market capitalization between $1 billion and $10 billion are classified under this section. They are considered to have great potentials but considered to possess greater risks.
Small-Cap Cryptocurrency: Coins that have their cryptocurrency market capitalization below $1 billion are considered to be very risky. They are susceptible to change and dramatic swings based on market sentiments. Although these coins give greater gains, because it is easy for their market cap to increase.

You should note that Coinmarketcap is currently the most popular website to keep track of the market cap of cryptocurrencies and to get an overview of how popular each currency is. It also offers the crypto world’s most popular index for all relevant financial metrics for cryptocurrencies.

On Coinmarketcap all prices are calculated by the volume-weighted average of all the prices from different exchanges. Bear in mind that it is important to monitor the circulating supply of a cryptocurrency – not the total supply. After all, it is only the circulating supply that is available on the market right now.

Conclusion

As an investor or trader, you should never go investing or trading without understanding cryptocurrency market capitalization. In case you don’t seem to understand, I will admonish you to go over it again and again. As a newbie, it takes time for you to fully grasp the whole intricacy of cryptocurrency market capitalization.