What is a Cryptocurrency Market Capitalization?
I see you clicked on this post. Chances are you are starting your journey down the crypto rabbit whole and have wondered “what is a cryptocurrency market capitalization” (or “what is a cryptocurrency market cap”)? We know firsthand that being a newcomer in the cryptocurrency space can be rather daunting at first; there is so much to take in it can be a lot like drinking from a fire hose. However, do not despair! The team at BitBarricade is here to help you conquer the learning curve by braking down common areas of confusion within the crypto community.
The Traditional Definition of “Market Capitalization
Until recently the term “market capitalization” (aka market cap) was reserved for publicly traded companies (listed on a stock exchange) and was used to gauge a company’s size and growth vs risk potential. Market capitalization is essentially the market value of a publicly traded company’s existing shares. The equation to is simple:
Number of outstanding shares X Price per share = Market Capitalization
Historically, there have been six classifications that businesses are grouped into based on the size of their respective market capitalization. These classifications exist for the purpose of assisting investors with understanding the risk related to investing. The classifications are broken up into broad market cap ranges:
- Nano Cap: Market capitalization below $50 Million (M)
- Micro Cap: Market capitalization between $50M and $300M
- Small cap: Market capitalization between $300M and $2 Billion (B)
- Mid cap: Market capitalization between $2B and $10B
- Large Cap: Market capitalization between $10B and $200B
- Mega Cap: Market capitalization $200B and greater
Typically, large caps are viewed as lower risk investments with more consistent growth over time. Smaller caps tend to have a much larger potential for growth; however, the risk assumed by an investor is also larger. It is important to remember that while the size of a company’s market cap is a widely used indicator of risk it is by no means be considered a universal law. There will always be large caps out there that participate in unscrupulous behavior; and that is a risk that no set of numbers can tell you (cough, Enron, cough, cough).
Applying Market Capitalization to Cryptocurrency
Now, for the real reason you came here; let’s apply the concept of market capitalization to cryptocurrency. If a company’s market capitalization is the amount of existing share multiplied by the share price;then the market capitalization of a cryptocurrency is the amount of coins in circulation multiplied by the price per coin:
Number of coins in circulation X Price per coin= Crypto Market Capitalization
Why Does the Crypto Market Cap Matter?
I bet you are thinking “All that is great but what good does this information do for me?… well, we are glad you asked! A cryptocurrencies market capitalization, when interpreted accurately, can give you look behind the scenes and tell you about certain aspects of the coin:
Liquidity: In this situation, the definition of Liquidity is the availability of liquid assets (cash) to a cryptocurrency. In simpler terms, a cryptocurrency’s liquidity is the amount of money invested in the coin and available to the currency’s developing organization. This money can be used in a variety of ways; hiring full time code developers, conducting marketing campaigns, executing strategic acquisitions, etc. The larger the pool of liquidity a cryptocurrency has the more likely it is to invest in its own improvement; thus, making it more competitive in the market place and resilient to its competitors. In conjunction with research, the market cap can tell you how those funds are being used.
Popularity: While market cap is not a comprehensive indication of a coins popularity, when compared side by side to competing coins of similar circulating supply, it can give you pretty good idea. If coin A and coin B both had the same circulating supply, but coin B had a larger market capitalization, that would communicate that its price per coin is higher. This ultimately tells you that the market has invested more money into coin B than coin A.
The Differences Between Crypto and Company Market Caps
Market capitalization is a constantly moving metric for both cryptocurrency and traditional companies; the reason being is that the share (or coin) price is changing sometimes on a second to second basis. Due to the fact that cryptocurrency industry is a new technology with a smaller market cap when compared to the traditional stock markets the price fluctuations can be extremely explosive (up or down). The main difference between the two is while companies typically have share price swings as well the number of share rarely changes. Cryptocurrencies, on the other hand, have large coin price swings as well as an ever-increasing coin supply.
Places to Monitor Crypo Market Capitalization
Now that you know what cryptocurrency market capitalization is you are ready use your new business skills and pulse the markets. Below you will find the top sites you can visit to conduct your cryptocurrency market capitalization research:
See, That Wasn’t So Hard!
At the beginning of this article the term “Market Capitalization” probably looked and sounded extremely scary to you; however, that is typically a strategy used by Wall Street to intimidate everyday people from learning what these terms actually mean. Thou shall fear not! BitBarricade team is here for you when you need us the most; explaining business terms for our peeps in a way that can actually be understood. Market cap is a valuable data point that can be used to assist you in making cryptocurrency (or any other) investment decisions.
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