If you have an interest in stock trading, you are most likely familiar with the market capitalization definition. This term is also used in the blockchain industry – read on to find out what it means in the crypto context.
What Is Market Capitalization?
In the cryptoverse, market capitalization, or market cap, is a metric that reflects the value, dominance, and popularity of a cryptocurrency. In general, a high market cap means that an asset has a strong position in the market.
What You Need To Know About Market Capitalization
You can either check the market capitalization online or calculate it manually. To do it, you have to multiply the current price of a coin or token by the total number of coins in circulation, as shown in the following formula:
Market Cap = Current Price x Circulating Supply
Note that you may also come across the term “total market capitalization”, which has a similar concept but takes into account the market data from the full range of cryptocurrencies rather than just one.
Investors use market capitalization to compare the growth potential of different cryptocurrencies and understand which ones of them are safer to buy. Here is an example:
- Cryptocurrency A has 100,000 coins in circulation and each coin is worth $4. Thus, its market capitalization equals $400,000.
- Cryptocurrency B’s circulating supply is 200,000 coins and each coin is worth $3, so its market cap is $600,000.
Thus, even though an individual coin A costs more than B, the overall value of the latter is 1,5 times higher, which makes it a more promising investment.
Remember that the market cap doesn’t reflect money inflow. For instance, if we take cryptocurrency A from the example, several millions of dollars could increase its price from $4 to $10, which would cause the market capitalization to go from $400,000 to $1,000,000. However, this doesn’t mean that the market experienced an inflow of $600,000.
