What is Market Capitalization and Why is it Important to the Cryptocurrency Community?

What is Market Capitalization
What is Market Capitalization

Cryptocurrency has had a significant hit recently, and it seems like it will only get more unpredictable. Bitcoin recently plunged to its all-time low of $30,000 despite having a massive rise in value, and the leading cause has been traced to some Chinese regulators who announced the ban of Banks and payment firms from using Cryptocurrencies.

Amidst the confusion, the term coined “Market Capitalization” has been continually brought up. Long-Term traders, Short-Term, and Investors have been conversing on how a specific Crypto coin has gained or lost some of its Market Cap.

Diving deeper into the term, you must have asked yourself the simple question; what is Market Capitalization? Down to the complex ones like how it affects the Cryptocurrency community and if you should be worried about the rise and fall of the Market Cap of a particular Crypto coin. Or if it affects your investments in any way at all? Well, in this article, all these questions will be answered to your satisfaction.

So, let’s begin.

What is Market Capitalization?

As its name suggests, Market Capitalization refers to the total value in USD of all the coins that have been mined. The Market Cap is an indicator that keeps track of and measures the total market value of all Cryptocurrencies. And it is calculated by multiplying the current price which a particular Crypto coin is trading at a particular point in time by the circulating supply, which is the total quantity of Bitcoin being circulated in the market at the same point in time.

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It can simply be calculated using the formula:

Market Cap = Current Trading Price x Circulating Supply of BTC

Many websites are currently being used to calculate the Market capitalization of different Cryptocurrencies. But, the most widely used because of its ability to offer the world’s most famous index on relevant financial yardsticks is CoinMarketCap. It’s crucial to note that an asset’s market capitalization does not provide concrete proof of an asset’s liquidity or any inflows of cash. That’s why having access to more information before making trading decisions and not relying solely on an asset’s Market cap is recommended. The Market Cap is mainly needed to note the dominance of a particular asset in the market to allow for an accurate ranking of Cryptocurrencies.

Does Market Capitalization affect the Cryptocurrency community?

It has been indicated shortly that the Market capitalization of a particular Cryptocurrency is essential for accurately indicating the dominance of the asset in the market. This is also very important to investors as they use the market cap to compare values across different Cryptocurrencies, clearing a path to what asset would be suitable for investment. Citing an example, if a particular Cryptocurrency has 100,000 coins in circulation and each of these coins is worth $3, it means the market cap is $300,000 using the formula above.

And, if another Cryptocurrency has 50,000 coins in circulation and each coin is worth $10, that makes its market cap $500,000. This indicates that even though the individual coin price of the first Cryptocurrency is smaller than that of the latter, the overall value of the former is double the latter.

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It is also important to note that the Market Cap of Cryptocurrencies is very volatile and can fluctuate drastically within short periods.

Top 10 Cryptocurrencies by Market capitalization

Here are the top ten Cryptocurrencies ranked using Market capitalization according to CoinMarketCap:

  • Bitcoin (BTC) – $615,105,869,692
  • Ethereum (ETH) – $289,732,973,166
  • Tether (USDT) – $62,346,263,666
  • Binance Coin (BNB) – $53,309,705,386
  • Cardano (ADA) – $48,408,086,549
  • Dogecoin (DOGE) – $42,333,216,242
  • XRP (XRP) – $39,480,486,099
  • USD Coin (USDC) – $23,029,737,366
  • Polkadot (DOT) – $20,206,032,090
  • UniSwap (UNI) – $13,218,913,667

Concluding, the Market cap is very useful in comparing the gross value of Cryptocurrencies, but it is highly recommended to do very thorough research before investing while considering all vital factors involved.

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Written by faqontech

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