Explained: What Is Crypto Market Cap (Capitalization)?

Market capitalization in crypto is the monetary value of a token or coin multiplied by its circulating supply (number of coins/tokens that have been mined or minted). It highlights the stability and value of an asset in the long term. 

While crypto is undeniably volatile, cryptocurrencies with a large market cap usually indicate that investments are more stable, as smaller cap cryptos are more susceptible to overall market sentiment. 

Let’s learn more about market capitalization and why it matters in your crypto journey. 

Key Takeaways:

1. Market capitalization in cryptocurrency is the monetary value of a token or coin multiplied by its circulating supply. It provides insights into the stability and value of a crypto in the long term.

2. Cryptocurrencies with a large market cap tend to be more stable and less susceptible to overall market sentiment compared to smaller cap cryptos.

Why Is Market Cap Important in Crypto?

In the cryptocurrency market, the price alone can be a misleading indicator when determining a project’s true potential and value. Even the largest cap crypto, Bitcoin, may skyrocket or dip wildly based upon factors such as public enthusiasm, quick changes in circulating supply or even a country banning crypto. 

Events such as these often impact the overall picture of a crypto’s ultimate potential. 

What savvy crypto investors like to see is a coin or token that possesses a relatively low supply but a high value. That said, crypto investors use the market cap as a critical indicator to compare the values of cryptocurrencies and determine their potential growth. 

Overall, high market cap assets usually translate to investors being more willing to pay for them.

For example, when crypto enthusiasts refer to the total supply of a cryptocurrency, they sometimes use the term fully diluted value (FDV). A fully diluted market cap is calculated based on the value of all the coins of a cryptocurrency, not just the ones in circulation. One of the reasons Bitcoin (BTC) continues to do well is that its fully diluted supply is only 21 million. Currently, over one million of these coins are left to be mined, as the total circulating supply of BTC is more than 19 million. 

As a result, BTC is one of the best-performing crypto assets, driven by its scarcity and utility. When discussing a token’s supply, it’s critical to differentiate between FDV or circulating supply as the standard, since taking market capitalization into account allows one to see the macro picture for more informed investment decisions.

How to Calculate Crypto Market Cap

Just as you calculate a stock’s market cap by multiplying the current share price by the number of outstanding shares, you calculate the market cap of a cryptocurrency by multiplying the coin/token’s current market price by its circulating supply. 

For example, to get the current market capitalization of Cardano (ADA) manually, we calculate as follows:

• Cardano’s current circulating supply is 35,045,020,830 at $0.279 (as of this writing)

• Multiply 35,045,020,830 tokens by $0.279

• ADA’s market cap is $9,768,165,285(roughly $9.8 billion)

However, you can calculate a coin’s market cap in a more straightforward way. Simply use crypto market cap calculators or visit price aggregator portals, such as CoinGecko and CoinMarketCap, to find out the current market cap of most cryptocurrencies. 

Identifying the Top Crypto by Market Cap

The term “market cap” is often tossed around when identifying the top crypto to buy. Cryptocurrencies with a larger market cap are viewed by investors as being desirable. Since the onset of crypto in 2009, Bitcoin has remained the top one, based on market capitalization. 

In November 2021, Bitcoin hit its highest market cap of $1.23 trillion when 1 BTC was trading at $69,044. The increase in market cap was ten times greater, as compared to a similar period in 2013 when Bitcoin’s market cap was around $1.2 billion. Such an increase indicates growth in a coin’s ecosystem, further driven by a decreasing supply of available coins. 

Another top crypto that’s held the number two spot for a long time is Ethereum. At its highest price of $4,878 in November 2021, Ethereum’s market cap was $571.67 billion. That figure was a tremendous increase from $80.34 million in 2015, when ETH’s price was at an all-time low (ATL) of $0.43. Ethereum’s ecosystem has grown tremendously over the years, leading to this incredible increase in its market cap. 

Tether (USDT), another top crypto in terms of market cap, is the leading stablecoin. USDT has remained among the top three cryptos in terms of market cap for quite some time. Interestingly, despite a sharp decrease in Tether’s trading volume due to the ongoing bear market, its market cap is almost at an all-time high of $83 billion as of June 2023. 

Source: Bybit

Classifying Cryptocurrencies

In terms of market capitalization, cryptocurrencies are classified into three types: large cap, medium cap, and small-cap cryptos. Let’s look at these categories and some of their cryptocurrencies. 

Large Cap

Large-cap cryptocurrencies are those that usually have a market cap exceeding $10 billion. These cryptocurrencies take the lion’s share of the cryptocurrency market capitalization. For those accustomed to investing in the regular stock market, purchasing large-cap cryptos is akin to buying blue-chip stocks. 

Considered blue chip cryptos, these cryptocurrencies include Bitcoin, Ethereum, Tether, Ripple (XRP) and BNB Coin (BNB). A new entrant into the large-cap class in 2023 is Lido Staked Ether (stETH). 

Although the cryptocurrency market is still considered volatile at this level, investors tend to classify large-cap cryptocurrencies as lower risks because they’re more established, having demonstrated sustainable growth and liquidity. They’re also somewhat less likely to plummet dramatically, even when a high volume of market investors pull out of their investments. 

However, anyone who’s been regularly following crypto markets can attest that nothing in crypto is impossible — case in point, the Luna crash of 2022.

Medium Cap (Mid-cap) 

Mid-cap cryptocurrencies have market caps that are between $1 billion and $10 billion. Most cryptos in this category are often on the move (with less than five years in the market), building highly innovative products, especially in the DeFi niche. 

Notable new entrants that have stormed into this category soon after launch in 2023 are Arbitrum and Aptos. Others that have been around for a while include Avalanche, Uniswap, Polkadot and Chainlink. While still quite volatile and risky, they may provide you with good returns if you’ve managed to get in early. 

Small Cap 

Small-cap cryptocurrencies have a market cap below the billion-dollar mark. They’re highly risky, but some hold potential for astronomical returns. Unfortunately, these are viewed as the most unstable cryptocurrencies, and many have track records involving scams and rug pulls. 

Some crypto influencers are strong proponents of getting into small-cap cryptocurrencies before their market cap explodes. After all, every large-cap cryptocurrency started as a small cap at one point. A shrewd investment strategy always includes investigating a project’s growth potential, and monitoring its market capitalization and classification is an integral step. Other metrics to thoroughly review include a coin’s tokenomics, the project team and other variables before buying in. 

Comparing Values of Cryptos

Since market cap fluctuates along with a crypto’s price, receiving to-the-minute updates is essential. Most crypto aggregators and exchanges provide a real-time update of an asset’s market cap, price and circulating supply. 

For example, CoinMarketCap and CoinGecko offer extensive updates on cryptocurrencies, and Bybit’s Market Overview offers live updates with the market’s 24-hour turnover rate. While every crypto investor has their own way of tracking these indicators, there are a multitude of resources available online. 

Taking market capitalization into consideration is a hallmark of more sophisticated investors.

Weighted Market Cap Strategy for Crypto

For investors seeking to add another element to their investment strategies, weighted market cap assessments can be helpful. For example (using small numbers for ease of calculation), if the market cap of Crypto A is $20 and the market cap of Crypto B is $80, then the sum of both market caps is $100. 

A person investing $100 could allocate $20 of their funds to Crypto A and $80 to Crypto B. Adopted from the centralized finance (CeFi) world, weighted market capitalization strategy obviously favors investing in coins that wield a heftier market cap.

There are some who believe that these tactics don’t work as well in the crypto world as they do in traditional finance (TradFi), but many others do apply this investing strategy on a daily basis.

What Factors Can Affect Market Cap?

The primary factors that affect market capitalization are supply and price. A skyrocketing price causes the market cap to rise significantly. With the supply always playing a part of the equation, however, investors get a clearer picture of any crypto’s future when they eschew temporary excitement over prices and look at the market cap data.

The Bottom Line

As an investment tool, market cap can be beneficial — and as with any investing endeavor, those who want to participate in the crypto world need to use actual data. With cryptocurrency especially, it can be very tempting to make emotional decisions. 

The media hypes up each bull run of Bitcoin and other altcoins, but it tends not to cover prolonged bear markets with the same breathlessness. A crypto investor who includes market cap in their strategy uses the same principle as a pilot who checks their instrument panel at the first sign of trouble.

Instead of panicking and looking outside, a good pilot knows that checking the most current data will help them make effective decisions so they can soar into the sky once again.

#Bybit #TheCryptoArk