Explained: What is market capitalization and why does it matter?

By common parlance, the larger a cryptocurrency’s market cap, the more dominant it is thought to be in the market. As a result, market capitalization can sometimes be recognized as the most essential statistic for assessing cryptocurrencies.

Related article | Crypto News: A Weekly Review

Coinmarketcap is now the most popular website for following the market capitalization of cryptocurrencies and getting an insight into how prominent each cryptocurrency is. Moreover, it provides the most popular cryptocurrency index for all essential financial information for cryptocurrencies.

What is the importance of market capitalization?

All prices on Coinmarketcap are determined using the volume-weighted average of all prices from various exchanges. It is important to keep an eye on a cryptocurrency’s circulating supply rather than the total supply. Then again, the only supply that is genuinely available on the market right now is the circulating supply.

How is Market Cap calculated?

The market cap of a cryptocurrency is determined by the current price multiplied by the circulating supply.

Let us compare the market capitalizations of two made-up cryptocurrencies to show.

If Crypto A has 500,000 coins in circulation and each coin is worth $1, it has a market capitalization of $500,000.

If Crypto B has 200,000 coins in circulation and each coin is worth $2, it has a market capitalization of $400,000.

Nevertheless, it’s worth noting that the market capitalization of various cryptocurrencies might fluctuate drastically according to their volatility.

What can market capitalization be used for?

Despite the fact that a project’s market valuation is still regarded as the most essential measure of viability, the fundamental idea is constantly criticized. The explanation is the cryptocurrency’s market cap usually reflects its long-term popularity.

Large-cap cryptocurrencies are often seen as risk-free crypto investments. These are companies having a market capitalization of more than $10 billion. Investing in cryptocurrencies with a high market capitalization is commonly a smart decision. These cryptocurrencies are expected to be less volatile than other cryptocurrencies, but they will still be more unpredictable than traditional investments such as equities.

Mid-cap cryptocurrencies are more volatile, but they also have far greater upside potential than large-cap cryptocurrencies. Comparatively, small-cap cryptocurrencies are often overwhelming and seen as a high-risk investment, while having a lot of potential (short-term) development. Nevertheless, consider the fact that they may crash at any time, potentially making the journey from hero to zero.

We always suggest conducting comprehensive research before investing in cryptocurrencies and taking into account all important considerations. In fact, market capitalization as an indicator doesn’t tell us much about actual trade volumes during the past several hours. Before investing, it becomes necessary to additionally check Coinmarketcap for the 24-hour trading volume of a cryptocurrency on various exchanges over a suitable amount of time, as well as other substantial aspects.

Related article | Bitcoin & Ethereum Market Overview 24/1/22

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Any opinions, news, research, analyses, prices, or other information discussed in this presentation or linked to from this presentation are provided as general market commentary and do not constitute investment advice.

MX Global Team does not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information.