Beginner’s guide: Cryptocurrency market cap and why is it important to your investment?

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By Tokenize Xchange
June 18, 2021

Taking part in cryptocurrency investment means that you should understand carefully the concept of Cryptocurrency market cap. In this article, Tokenize Exchange will provide you with the definition of the crypto market cap and the reason why it plays an important role in evaluating an investment.

cryptocurrency market cap

1. What is cryptocurrency market cap?

Market cap or capitalization cites the total market value of a company’s stock. A firm’s market cap can be calculated by multiplying the current stock price by the total number of outstanding shares. 

In the case of cryptocurrency, the market cap is the value of all the coins that have been mined and existing in the market. 

Cryptocurrency market cap = Current market price x Circulating supply

For example, if a digital coin is being traded at $1, and its circulating supply is equal to 100,000,000 coins, the cryptocurrency market cap would be: 

$1 x 100,000,000 = $100,000,000

Easy peasy, right? 

>>>Read more: Beginner’s guide: What is cryptocurrency?<<<

2. What is Coinmarketcap

If you are a trader or an investor, you must not be strange with CoinMarketcap. If you are a newbie, you cannot miss this website. 

CoinMarketCap is a website that tracks most of the coins listed on the market, such as Bitcoin, Ethereum, Litecoin, etc. It helps traders to update cryptocurrency market capitalization, the current value of each coin, circulation supply, the trading volume in the last 24 hours, and the change in value within 24 hours. 

total cryptocurrency market cap

By providing a simple and free tool to track cryptocurrencies, CoinMarketCap can help traders to make smarter investment decisions. 

>>>Read more: Beginner’s guide: Blockchain for the uninitiated<<<

The difference between Circulating Supply, Total Supply, and Max Supply 

Circulating Supply, Total Supply, and Max Supply are three concepts used to calculate a digital coin’s supply. Let’s see what the difference is between them.

  • Circulating supply is the most common metric that is commonly used for calculating cryptocurrency market capitalization that is available to the public. 
  • Total supply is the total amount of existing coins. The coin total supply includes coins or tokens circulating in the market and coins that are reserved, locked, or not sold in the public market. 
  • The Max supply of a digital coin is the maximum number of cryptocurrencies that will be ever created. Once the coin maximum supply is reached, no coins will ever be mined or produced. This metric is defined by the protocol of each cryptocurrency. However, some cryptocurrencies can be mined continuously which means they have no maximum supply, ETH is an example. 

cryptocurrency market cap explained

3.Why cryptocurrency market cap is so important to your investment

Cryptocurrency market cap has been considered as the most important factor to evaluate the position of a coin. Coin market capitalization is divided into 3 types according to its sizes: Large-cap, Mid-cap, and Small-cap.

  • Large-cap: Digital coins with more than $10 billion capitalizations are considered a large-cap cryptocurrency which is classified as large-cap cryptos and safe investments. However, like any other financial product, big-cap cryptos still contain an amount of risk. There are 16 large-cap cryptocurrencies on the market including BTC, ETH, USDT, etc. 
  • Mid-cap: Cryptocurrencies with a market cap between $1 billion and $10 billion are classified as mid-cap cryptos. Mid-cap cryptocurrencies contain higher risks than large-cap.
  • Small-cap: cryptos with under $1 billion are small-cap with high risks and higher. 

>>>Read more: Investment guide: cryptocurrency long and short position<<<

Cryptocurrency market cap is one of the key but not the only metrics to assess a crypto investment. Keep in mind that there are many other tools to help you with evaluating a digital asset. Before trading, don’t forget to do thorough research and arm yourself with knowledge of the market. Keep following Tokenize Blog for more crypto guides and information. 

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All content produced by Tokenize Exchange is intended solely for educational purposes. This should not be taken as financial or investment advice. Individuals are advised to perform due diligence before purchasing any crypto as they are subject to high volatility.