Crypto Market Cap Explained

Cryptocurrency market capitalisation is a valuable metric used to gauge the size and popularity of a cryptocurrency, and evaluate its value in the market. Understanding market capitalisation, how it's calculated, and the difference between small, medium, and large cap cryptocurrencies is essential for crypto traders and investors to make more informed decisions about their investments. Read on to get the details. 

What is Crypto Market Cap?

Crypto market capitalisation, often referred to as “market cap”, is a measure of the total value of all the coins or tokens in circulation. It is a commonly used metric for traders and investors to assess the overall value of a cryptocurrency and its potential for growth.

How is Market Cap calculated? 

Market Cap is calculated by multiplying the current market price of an asset by the number of coins or tokens in circulation. 

Current Price X Circulating Supply = Market Cap

Using Bitcoin as an example:

US$21,728 (Current Price) X 19,290,231 (Current Circulating Supply) = US$419,154,410,350 (Market Cap), at the time of writing. This can also be referred to as the total value of all Bitcoins. 

Thankfully, websites like CoinMarketCap and CoinGecko list all the crypto market caps in real time, so you don’t have to crunch the numbers yourself. 

Market cap can also be applied to measure the total capitalisations of all cryptocurrencies in existence. The total crypto market cap is currently over US$1.1 trillion as crypto adoption continues to grow. 

Why is Market Cap important?

Price is just one way of measuring a cryptocurrencies worth, but it can be misleading, especially for new investors. Market Cap paints a more complete picture and is a more comprehensive measure of value as it helps illustrate how the world values a particular cryptocurrency and compares its dominance in relation to competing crypto assets. This metric helps traders and investors make inferences about the risk profile of a coin and its potential for long-term growth.

Let’s look at an example of two fictional cryptocurrencies to demonstrate:

-If Crypto A is worth $1 per coin and has 500,000 coins in circulation, it’s market cap is $500,000

- If Crypto B is worth $2 per coin and has $100,000 coins in circulation, it’s market cap is $200,000 

-As you can see, even though a single coin of cryptocurrency B may be worth more than one of Cryptocurrency A, Cryptocurrency A’s market capitilisation is over double its competitor. 

Crypto classification by Market Cap

Cryptocurrencies are generally classified into three main classes based on their market cap:

Small-cap

Small-cap cryptocurrencies tend to have market caps under US$1 billion. These assets are considered to carry the highest levels of risk and can be highly volatile, as they usually have less exchange support and lower volume. Many new cryptocurrency projects - such as IMX, SNX and CHZ - fall into this category

Medium-cap

Medium-cap cryptocurrencies range between US$1 billion to US$10 billion in market cap. These cryptocurrencies are generally considered less risky than small-cap assets, but still offer potential for growth and high reward. Medium-cap cryptocurrency examples include AVAX, LINK and XLM. 

Large-cap

Assets with market caps greater than US$10 billion are considered large-cap cryptocurrencies. They are generally regarded as lower-risk investments since they have been well established in the market. Large-cap cryptocurrencies include some of the most well-known cryptocurrencies like Bitcoin, Ethereum and XRP. 

Investment Considerations

While market cap is a valuable metric, it shouldn’t be used in isolation when evaluating the potential of a cryptocurrency. There are many factors that need to be taken into consideration when doing your research to make a more informed investment decision. Some of these include:

-Fully diluted value

-Trading volume and liquidity

-Utility/use-case of a project

-Community and team behind it

-The white paper and future road map

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