What is the Cryptocurrency Market Cap?
Table of contents:
- The Crypto Market Cap Explained
- Factors that Affect the Cryptocurrency Market Cap
- Supply and Demand
- Adoption and Application
- Investor Sentiment
- Why Market Cap Is Important
- How You Can Use Market Cap:
- Large-cap Tokens
- Mid-cap Tokens
- Small-cap Tokens
- How Market Cap Affects the General Crypto Sphere
- Top 10 Cryptocurrencies By Market Cap
- The Potential of The Global Crypto Market Cap: How big can the cryptocurrency market cap get?
With tens of thousands of cryptocurrencies jostling for space in an often volatile market, the total cryptocurrency market cap is usually in flux. At the moment, the global market cap rests just under $1.2T but what exactly is this value? What factors regulate its movements? How do individual cryptocurrencies play into the global market cap? And most importantly, how big can the cryptocurrency market cap get? Let’s find out.
The Crypto Market Cap Explained
In general terms, market cap (short for market capitalization) describes the total dollar market value or worth of a company or an asset class. To calculate a company’s market cap you take into consideration the organization’s overall shares of stock. Then, you multiply the price of a stock by the total number of available shares. For instance, say an entity has 10 million share units, if each one was selling at $25 the company’s total market cap would be $250 million. Basically;
Market cap = 10,000,000 x $25
Market cap = $250,000,000
In the context of cryptocurrencies, the market cap is the total value of all the circulating tokens, coins, or units of a particular cryptocurrency. As you do with a company, to tally the market cap of a cryptocurrency, you multiply the total number of tokens by their current market price. Take Bitcoin for example; according to Coinmarketcap, there are 19,369,031 BTC in circulation at $27,590.71 per token. That makes for a total market cap of $534,405,340,135 or $534.4 billion.
Factors that Affect the Cryptocurrency Market Cap
Coin supply and market price and the two main components for calculating the crypto market cap. However, they can be influenced by a range of factors and this in turn affects market capitalization. Some of those factors are;
Supply and Demand
The principle of supply and demand is a major factor in the price of a digital token. If a cryptocurrency experienced a surge in demand while its supply remains constant, the token’s value is bound to rise. This of course, will result in a rise in the asset’s market cap. A plunge in demand meanwhile would mean a drop in value and the market cap as well.
Adoption and Application
Greater adoption and more diverse use cases for a cryptocurrency are among the primary drivers of a token’s market cap. A digital token with many applications and a high level of adoption is likely to have a larger market cap as it experiences more demand.
A favorable regulatory environment can provide stability for investors resulting in increased demand and ultimately driving up the market cap. On the other hand, restrictive regulations can make for a harsh trading environment which can slow things down and bring down the total market capitalization.
Investor sentiment or market perception can also have a significant impact on the cryptocurrency market cap. Positive news, such as regulatory approvals or partnerships, can drive up investor interest and increase the market cap, while negative news or events can have the opposite effect.
Why Market Cap Is Important
Crypto market capitalization is a key metric because it serves as a way for investors to measure the overall size and potential of the crypto market.
We cannot deny that price plays a major role in determining the worth of a specific coin. However, market cap places the total token supply in the mix, and this helps paint a clearer picture of the cryptocurrency’s overall value.
By weighing the market caps of different cryptocurrencies, investors can evaluate their worth and potential as investments. A high market cap may point to a cryptocurrency that is well-established and has a strong following, while a lower market cap may suggest a cryptocurrency that is newer or has yet to gain widespread adoption.
Moreover, a token’s market cap can also shine a light on the relative safety of that particular asset. Cryptocurrencies with larger market caps tend to be less volatile and more stable, which can make them a safer investment option compared to smaller, less established cryptocurrencies.
In summary, the cryptocurrency market cap is an important metric for investors to consider when evaluating the potential of individual cryptocurrencies and the overall health of the cryptocurrency market.
How You Can Use Market Cap:
As mentioned above, the market cap is a useful metric for investors and traders to compare different cryptocurrencies. They can analyze market trends, evaluate investment opportunities, and monitor the health of the market to make informed trading decisions. Cryptocurrencies fall into 3 main categories based on their market cap;
These are tokens with a market cap of over $10 billion, they are usually the most established and well-known cryptocurrencies. Examples include Bitcoin and Ethereum. Large-cap tokens are mostly viewed as a safer investment option, with lower volatility and more stability compared to others.
These coins have a market cap between $1 billion and $10 billion. They are typically more volatile than large-cap coins, but have more potential for growth. Examples include Polygon, and Solana. Mid-cap coins may be riskier, but can also offer higher returns.
These are the riskiest investment option, with a market cap below $1 billion. These coins are often highly volatile and can experience sudden price fluctuations. However, small-cap coins also have the potential for significant short-term growth and can offer high returns. Examples include Helium, and Theta Network.
How Market Cap Affects the General Crypto Sphere
Here are some of the ways that market cap can impact the cryptocurrency ecosystem:
- Increased investor confidence: A high market cap can signal to investors that a particular cryptocurrency is stable, reliable, and has a strong community. This can lead to increased investor confidence in the cryptocurrency, which can attract more investment and lead to further growth.
- Increased liquidity: A high market cap can also mean that a particular cryptocurrency is highly liquid, meaning that there are many buyers and sellers in the market. This can make it easier for investors to buy and sell the cryptocurrency, further pushing liquidity and growth.
- Higher adoption rates: Cryptocurrencies with high market caps tend to have higher adoption rates, as they are often more widely accepted by merchants and service providers.
Top 10 Cryptocurrencies By Market Cap
Table showing the top ten cryptocurrencies by market cap (Source: Coinmarketcap)
The Potential of The Global Crypto Market Cap: How big can the cryptocurrency market cap get?
The global market cap is the sum total of the market caps of all cryptocurrencies in circulation. At the moment, this value is around $1.2T, however, we cannot put an exact figure to how much bigger it can get.
Since Bitcoin showed up in 2008 and the crypto world was born, the industry has established itself as a major player in the financial sphere. Plus, given that the space hit an all-time high of roughly $3 Trillion in 2021, experts generally agree that there is likely more to come.
How does Bitcoin's market cap compare to other cryptocurrencies?
Bitcoin has the largest market cap among all cryptocurrencies, followed by Ethereum and Binance Coin.
What are some limitations of market cap as a metric?
Market cap doesn't take into account factors such as circulating supply or price volatility, and can be easily manipulated by whales or low-cap coins with inflated prices.
How does market cap relate to other metrics such as trading volume or liquidity?
Market cap and trading volume are related but not directly proportional, as trading volume can fluctuate greatly on a day-to-day basis. Liquidity measures the ease of buying and selling an asset, and can be affected by both market cap and trading volume.