What is Market Cap?
Crypto market capitalization refers to the total value of all cryptocurrencies. In contrast to stock market capitalization, crypto market capitalization is calculated by multiplying the price of a cryptocurrency by the number of coins in circulation.
For stock market investors, market capitalization is an essential factor. This isn’t the case for crypto investors.
Stock market capitalization — the value of a company’s total shares of stock — can help investors build and maintain an investment portfolio. Still, crypto investors do not have to abide by those rules.
One way to think about market cap is as a rough gauge for how stable an asset is likely to be. A cryptocurrency with a much larger market cap is expected to be a more stable investment than one with a smaller market cap. Conversely, digital currencies with smaller market caps are more susceptible to the whims of the market — and can see huge gains or dramatic losses in their wake.
What can you do with Market Cap?
The market cap of a cryptocurrency enables you to compare its overall worth to other currencies, helping you to make better investment decisions.
Cryptocurrencies are divided into three groups based on their market cap:
● The market capitalization of large-cap cryptocurrencies exceeds $10 billion. Investors consider them to be lower-risk investments because they have a proven track record of growth and typically have better liquidity. This means they can sustain an enormous volume of individuals cashing out without significantly damaging the price.
● Mid-cap cryptocurrencies have market values ranging from $1 billion to $10 billion, and they are often thought to have tremendous untapped upside potential but at the same time, more risk.
● Small-cap cryptocurrencies have a market capitalization of less than $1 billion and are the most vulnerable to market sentiment fluctuations.
In comparing the total value of cryptocurrencies, the market cap is an important metric. Nevertheless, market trends, the stability of a cryptocurrency, and your financial situation all need to be considered when weighing investment risks.
(written Catherine S Thomas)