What is Market Cap? Why does it play such an important role in the Crypto market?
What is Market Cap?
Market Capitalization, often known as Market Cap, is a statistic used to determine the worth of a project. Market Cap is computed by multiplying the entire token supply or the number of tokens in circulation by the current market price of that project.
The Market Cap serves as an unequivocal indicator of a project’s popularity, dominance, and value. It is an incontrovertible fact that a project with a higher Market Cap is more popular and dominant in the market. Prime examples of such projects include Bitcoin and Ethereum.
Why is Market Cap important?
Investors use Market Cap to assess the worth and potential for growth of a cryptocurrency project. Along with other factors like market trends and sentiment, market capitalization is a widely-used metric that traders rely on to evaluate investment opportunities.
Often projects are categorized into large Market Cap, Medium Market Cap, and Small Market Cap groups based on their market capitalization.
Projects with a large market capitalization are those ranked within the top 10 in terms of market cap. These projects tend to have less volatility and greater liquidity compared to other groups. Bitcoin and Ethereum are good examples of projects in this category.
Cryptocurrency projects with a Market Cap between $1 billion to $10 billion are typically ranked within the top 10-50 and fall within the average range. It is important to note that these projects are highly volatile and risky, especially when compared to those with larger Market Caps. Some examples of such projects include Avalanche (AVAX), Uniswap (UNI), Chainlink (LINK), and more.
Small market cap projects, defined as those with a market capitalization below $1 billion, have the potential for greater returns but also carry a higher degree of risk. It’s essential for investors to carefully consider the risks and benefits before investing in such projects.
How to calculate the Market Cap of a project?
We shall multiply the total number of tokens in circulation by the project’s token price to get the market capitalization of a certain project.
For instance, the price of WorldCoin (WLD), which is currently $2.28, has a circulating supply of 114,822,486 WLD
Thus, 114,822,486 X $2.28 = $261,546,758 is the current market capitalization of WorldCoin.
Through this article, we have acquired essential insights into evaluating projects. By closely monitoring these critical indicators, we can make astute investment decisions with greater confidence.
Cryptocurrencies are subjected to high market risk and volatility despite high growth potential. Users are strongly advised to do their research and invest at their own risk.