Market Cap is short for “Market capitalization,” a term that points to the value of a traded asset. Cryptocurrencies likewise have market caps, a measure of the current value and size of a particular cryptocurrency. If a coin or token has a relatively high market cap, it is naturally bigger than other altcoins in the market. As an illustration, bitcoin is the largest cryptocurrency at the moment, based on its market capitalization.
Calculating market cap is relatively simple, and is determined by multiplying the spot or current trading price with the total circulating supply. Continuing with the bitcoin example, one bitcoin is currently worth $6,612. Rounding up to simplify this example, it can be said that there are 18 million bitcoins in circulation.
In addition, bitcoin has a market dominance sitting at around 40 percent. What this means is that bitcoin’s value comprises around 40 percent of the whole cryptocurrency market.
Market Capitalization: Market Price
The market price of an altcoin refers to its price according to current market rates, seen on various exchanges. Simplified, a digital coin’s price is that which buyers and sellers agree upon in an open market. Complicating things slightly is that different exchanges peg different prices on bitcoin. Different trading pairs will also impact price, as does the simple matter of where in the world the country snapshot price is taken.
It’s demonstrably true that bitcoin prices are not consistent across exchanges and countries at any particular moment in time. This happens because of differences in supply and demand, the fundamental dynamic at play when any asset is traded, digital assets included.
The logical and usual route to pegging an asset’s price is to employ an aggregated price. This is simply the average of all prices, collected across different exchanges around the world at that moment in time.
Market Capitalization: Circulating Supply
The circulating supply of any currency refers to the number of coins in global circulation. Circulating supply is different to the total supply, especially with cryptocurrency. At the time of writing, there are 17,106,787 bitcoins in circulation. The maximum final “mint” of bitcoins will be 21 million, based on its original setup and mining protocols.
New bitcoin will be generated while mining continues, until the last coin is released to total 21 million. At that moment, bitcoin’s total supply will equal circulating supply. Many altcoins come pre-mined, which means that the full supply of tokens is available to the system at the outset.
In the majority of new cases, this is the model employed, and these altcoins arrive with a total supply equivalent to their circulating supply. There’s an understandable tendency for traders to look at an altcoin and attribute a value to it based solely on its current price.
Altcoins priced in cents attract those who hope to see it rise massively in value over the short term. There is, however, another critical factor to contemplate when assessing any digital currency, and that is its circulating supply. For example, Ripple is priced at $0.485, a fraction of, say, Litecoin’s current price of almost $80.70. if a trader views both coins’ prices, they might bank on Ripple rocketing upwards, whereas Litecoin seems far more “settled” and unlikely to gain in dollar bites.
In reality, however, Litecoin’s prospects are in fact far more favorable. This is so because Litecoin has a circulating supply of but 57 million coins, far less than Ripple’s 39 billion! To equate Ripple’s market cap, Litecoin will have to quadruple in value. But Litecoin’s true value for an investor may present differently when circulating supply is factored in and given correct weight in appraising the coins. It remains important to look at market cap and aspects like circulating supply – as opposed to just price – in order to legitimately evaluate a cryptocurrency.
Total Market and Individual Market Capitalization
Two metrics are important when looking at market capitalization in the cryptocurrency market. The first would be the market capitalization of each cryptocurrency. This metric deals with individual digital coin caps, and with the maturation of the cryptosphere, sites like CoinMarketCap are a click away and detail all current token caps worth noting.
Altcoins are typically ranked according to their market cap, as it’s an informative tool with which to analyze investments. A coin’s market cap is essential when assessing any particular coin, or when comparing altcoins.
Users wanting a big picture of the overall market would look at the second industry market capitalization metric. Here the total market capitalization of the cryptocurrency industry is gauged.
Total market cap indicates the value of the whole cryptocurrency market. With thousands of cryptocurrency tokens now afloat, the total market cap is that of all existing altcoins. The total market cap of the cryptosphere currently stands at $267,802,000,000.
Market Cap Importance and Use
Using a coin’s market cap to determine investment value is nuanced and not quite as simple as many make it out to be. Financial theory typically posits that the bigger an altcoin, the slower will be its subsequent growth rate. This is based on legacy blue chip analysis, and not always appropriate in the world of digital coins. Similar to theories punted by penny cap investors, a newly minted altcoin should find it far easier to triple or more in price as opposed to a market leader like bitcoin.
This has to be traded off against the equally real prospect of a new coin not experiencing uptake and falling in price shortly after release. Hence, while bitcoin has time and huge global favor on its side, it cannot hope for a novelty window that jumps its price dramatically anymore. On the other hand, a new crypto token might be able to rapidly gain in value, yet it has its novelty and market competition to deal with, and therefore there are no guarantees either.
Lower market cap coins are also open to abuse by traders and especially whales (large-scale investors). It’s easy for some to manipulate lower-cap coins as they are still in their infancy. There is no history nor many case studies that afford the coin respectability among global investors.
A bugbear of regulators the world over, this kind of market manipulation is symptomatic of the problems legislators seek to address, as these practices are dark in legacy investing too. It follows logically that such attempts directed at bitcoin would be useless, as the project has a much higher value and trading volume. Attempting to manipulate the bitcoin market would involve vast sums of money and is, for all intents and purposes, not possible – or certainly not effective or worthwhile trying.
Viewing Market Cap Correctly
As has been shown above, market capitalization cannot be the only tool employed by any diligent investor, yet it also cannot be left out of any serious analysis. Market cap opens the door to a comprehensive and best-possible analysis of a digital currency. Viewing any metric or other indicator in isolation cannot give a trader the big picture.
Market cap is typically an indication of the size or value of an altcoin. Cryptocurrency investment is still an extremely volatile space, and investing in any digital currency by looking at any one singular metric is a recipe for getting it wrong. Current price, market cap, circulating supply and future supply-and-prospects all need to be seen together before a cryptocurrency can be evaluated.