If you want to start investing in crypto, you need to look at its cryptocurrency market cap. This way, you understand how the crypto space works and what factors influence its future prices. Thereby, you can make better decisions and earn more profits from your investments.
Basically, cryptocurrency market cap is a simple way to find out the value of a cryptocurrency in the market. In this guide, you will learn about the basics of crypto market cap and its importance. Apart from that, you will also know about different categories of market cap.
Hence, to learn more about the market cap of cryptocurrencies, read on.
Basics of Cryptocurrency Market Cap
As you learn how to buy cryptocurrency, you also need to look at the market cap of that particular cryptocurrency. This is because it comes with significant financial implications for investors.
For example, a higher market cap for a cryptocurrency shows that it is a stable form of investment. However, a lower market cap pertains to an unstable form of investment.
The relative size of a cryptocurrency is its market cap. Basically, it is the total value of all coins (in USD) that are in circulation.
Here is the formula,
Cryptocurrency Market Cap = Circulating Supply of a cryptocurrency x Current price of each cryptocurrency.
As an investor, once you understand the size of the market cap of a cryptocurrency, you can infer a coin’s risk profile. Thereby, you can find the potential for its future growth and how much it dominates the market.
If you want to learn more about the market cap of top cryptocurrencies like Bitcoin, Ethereum, Tether, etc., check out the blogs at Coinfomania.
Why Cryptocurrency Market Cap Is Important?
Cryptocurrency market cap is important for the following reasons:
1. It Acts as a Metric for Investors
The importance of cryptocurrency market cap lies in the fact that investors use it as a rough metric. This way, they find the stability of a certain cryptocurrency. Also, the market cap shows how popular cryptocurrency is in the market.
So, if you are investing in cryptocurrencies or want to check the long-term growth of a cryptocurrency, you need to understand market cap trends.
2. It Shows You the Stability of a Coin
Generally, a coin with a larger market cap has the potential for long-term growth. Actually, these coins show a longer track record of growth. Hence, when people suddenly cash out their coins, they can withstand the changes. Moreover, coins with a larger market cap show fewer fluctuations.
3. You Can Determine Asset Performance
By understanding the market cap, you can see past the cryptocurrency’s price. This way, you can get an insight into its value. Also, by learning about market cap, you can compare the performance of coins. Hence, you can compare the relative value and size of a crypto with another
On the other hand, if you take data from a wide range of cryptocurrencies, you can learn about the total market cap. This will give you an idea of how the entire asset class is performing.
4. Learning About Market Sentiment
As an investor, you must be aware of the impact of the market cap on the price of an individual crypto asset. Here, you can understand how the market cap influences the way people perceive the coin (market sentiment) and overall, how do you buy cryptocurrency?
Basically, if the market cap of crypto is high, it shows that the demand and stability of that cryptocurrency are high. Hence, it signifies investor confidence and how the price goes upward.
Categories of Cryptocurrency Market Cap
The cryptocurrency market cap falls into one of the three categories:
1. Large Cap
These are cryptocurrencies with a market capitalization of more than $10 billion. Generally, these are coins that most people already know about: Bitcoin (BTC), Ethereum (ETH), Tether (XRP), and others.
Since these are large-cap cryptocurrencies, they have a higher trading volume than most cryptocurrencies. Also, investors consider these cryptocurrencies to have a low-risk profile. This is because these cryptocurrencies have shown growth over a period of time.
Moreover, there is high liquidity with these cryptocurrencies. Hence, investors can sell some coins without seeing too many price fluctuations.
2. Medium Cap
These cryptos have a market capitalization between $1 billion and $10 billion. As a trader, if you want to predict the growth potential of certain coins, look at medium-cap coins.
However, there is still a possibility of risk. This is because these cryptocurrencies do not have an established positioning as a large-cap cryptocurrency.
3. Small Cap
A cryptocurrency that has a market cap of up to $1 billion dollars is called a small-cap cryptocurrency. Actually, these cryptocurrencies have low exchange support and lower volume. Hence, they show high fluctuations in prices and hence are less stable.
Therefore, if there is a small movement in the market, the price swings for those cryptocurrencies become volatile.
Cryptocurrency Market Cap vs. Cash Inflow
Many investors confuse market capitalization and cash inflow. This is because both are expressed in USD.
Basically, the market cap is the total value of cryptocurrency. It is the product of the current price of one coin in the market and the total number of such coins in circulation. In fact, it shows the overall value of that particular coin.
On the other hand, cash inflow is the total amount of money that investors invest in the market. This is the total amount of new funds that come into the market.
Here, even without any new money entering/leaving the market, the market cap of a cryptocurrency can change with price fluctuations. However, any new money that is entering/leaving the market will make an impact on cash inflow.
Start Your Analysis Now
Now you know how the cryptocurrency market cap works, start analyzing whether investing in a particular crypto is worth it. Once you have an understanding of the workings and importance of market cap, you can make your investment decisions better.
Do you want to share how to check the market cap of any random cryptocurrency? Consider sharing some tips in the comments section below.