Cryptocurrency Market Cap or Cryptocurrency Market Capitalization is a useful metric used to understand the real value of a cryptocurrency. This metric indicates the size and market value of a circulating cryptocurrency.
The market capitalization of a cryptocurrency can be represented by this simple equation:
Price of each coin * Circulating supply (total number of coins in the market) = crypto market cap
Calculation of the market capitalization of the cryptocurrency
As we said above, a coin’s market cap is calculated using this formula:
Market capitalization = Circulating supply * Price of each coin.
If “X Coin” has 200,000 circulating coins and each coin carries a value of $4, the market cap of coin X will be 200,000*4 = $800,000.
Likewise, if “Y Coin” carries a value of $6 and has 60,000 circulating coins, its market cap will be 60,000*6 = $360,000.
So even if the individual price of Coin Y is higher than that of X, the overall market cap of X is substantially higher than B in terms of its market cap. This is why market capitalization is a better indicator of a company’s worth than the price of its individual tokens.
Large Vs. Mid Vs. Small-Cap
So what’s the point of ranking by market capitalization? What do we learn from this metric?
This shows us how much risk we face when choosing to invest in a cryptocurrency.
- Large-cap cryptocurrencies have a large market capitalization and are considered safe investments. Cryptocurrencies with a market capitalization greater than $10 billion are large-cap cryptocurrencies. Some examples are Bitcoin, Ripple, and Ethereum.
- Mid-cap cryptocurrencies have a smaller market capitalization with more risk than large-cap crypto. Cryptos with a market cap between $1 billion and $10 billion are mid-caps.
- Small-cap cryptocurrencies have the least market capitalization along with the highest risk. Cryptocurrencies with a market capitalization of less than $1 billion are small-cap.
Risk vs. Reward
Market capitalization gives you a good idea of the growth potential of crypto.
If you want to put in your money in large-cap crypto, your investment will generally not experience major growth. It will be a “safe” investment in a less volatile investment.
Now, mid-cap cryptos have a lower market cap in comparison to large caps. They have greater growth potential than large caps, which is also why they carry more risk. The reason they have more growth potential is that they may still be increasing their market or utility. As such, these are not near their full potential.
Due to their small market capitalization, these cryptos are sensitive to market whims. They do exhibit the highest risk of all but, at the same time, they also have the potential to really explode in value and give you massive returns on your investment, far more than what large or mid-cap cryptos can offer you.
Market Cap on the BlockBanc app
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