What is crypto market cap?
Cryptocurrency market capitalization is a simple, straightforward way of finding out how big a digital currency is — and it can help you make smarter investment decisions. In fact, Coin Market Cap first popularized looking at a coin’s market cap for ranking crypto-assets way back when.
How To Calculate Crypto Market Cap
Now that you understand the crypto market cap definition, here is a simple formula for calculating the market capitalization of a coin.
Total Supply * price of one coin = market capitalization.
To understand how the cryptocurrency market cap formula works in practice, let’s take a look at an example. At the time of writing, the price of a single Bitcoin was $7202 and there were 18 097 425 Bitcoins in circulation.
18 097 425 * 7202 = 130 337 654 850. So, we can conclude that the market cap of Bitcoin at the time of writing amounted to 130 billion, 337 million USD.
A large market cap in cryptocurrency can indicate both the high cost of one coin, or a large number of coins in circulation. The growing cryptocurrency market capitalization is an important aspect for potential investors. It proves that this crypto is developing, and digital money is becoming an increasingly popular means of payment.
Crypto Market Cap ≠ Total Fiat Investment
New cryptocurrency investors often make the mistake of thinking that the market cap reflects the total amount of fiat currency invested in a coin. This is false for a number of reasons.
When the cryptocurrency is first created, not all of the coins will necessarily be purchased. If only one person buys a coin, for $1, and the total number of coins is 20,000,000, then the total market cap would still be $20,000,000.
If demand increases for the cryptocurrency and people start to aggressively buy, then the bidding will drive up the price. This increases the value of other people’s tokens accordingly – raising the total market cap even further.
Then, if everybody suddenly decided to sell the cryptocurrency when the market cap reached $200 billion, the price would rapidly fall due to shrinking demand. The total amount of fiat currency investors would be able to withdraw would be less than $200 billion.
Is Crypto Market Cap an Important Metric?
There's a lot of debate about how much weight should be placed on the size of the cryptocurrency market. Some critics claim that it's an unwelcome legacy of the stock market — leading to misguided investment decisions and contributing to substantial levels of fear and greed.
However, crypto market caps can also give us a fact-based look at how altcoins are performing — a much-needed source of objectivity away from social media.
From Litecoin to Cardano, Binance Coin to Monero, and Tether to Tron, you can find comprehensive details about market capitalization on CoinMarketCap.
This can help you make informed investment decisions about cryptoassets in real time as blockchain technology and digital currencies continue to gain momentum.