Market capitalization is something that has traditionally been applied only as a measure of the total value of a publicly traded company. It is found by multiplying the number of shares outstanding by the price per share. Its use as a measure of overall value is now applied to bonds, commodities and cryptocurrencies using the same formula.
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What does crypto market capitalization mean?
In the stock market, market capitalization refers to the total market value of all outstanding shares of a company.
It is similar in cryptocurrency, except that cryptocurrencies do not represent equity in a society like stocks. The market capitalization of a coin is simply what you would get if you added up every available coin to the current price per coin. Imagine if you cashed out every Bitcoin in existence at exactly the same time. This is the market capitalization.
For example, Bitcoin’s market cap is 18,330,762 BTC X $7200 = $132 billion, at the time of writing. This can also be referred to as the total value of bitcoin. You can do the same math for Ethereum or Solana.
Luckily sites like CoinMarketCap and CoinGecko list all cryptocurrency market capitalizations in real time, so you don’t have to munch on the numbers frequently yourself.
There is also the total market capitalization of cryptocurrencies
, which combines the market capitalization of all cryptocurrencies. This number is over a trillion these days as crypto adoption continues to progress.
Circulating supply vs. market capitalization
The circulating offer consists of all the coins currently in circulation, i.e. available to users. Coins may have a very high circulating supply but still have a low market capitalization. Ripple, for example, has a circulating supply of 44 billion XRP, but its market cap is only $8.4 billion, because its price for XRP is only $0.19.
Which cryptocurrency has the largest market capitalization?
Bitcoin has the largest market cap at ~$132 billion ($320 billion at its peak), making it the same market capitalization as state-owned companies like Visa, Johnson & Johnson, and IBM.
What are Altcoin’s market capitalizations?
There are a number of Bitcoin alternatives, referred to as “altcoins”, that have developed huge followers. Altcoin’s market cap is the same idea as Bitcoin, except for altcoins. Here’s a look at the top five at the time of writing this article:
- Ethereum is second at $19 billion (110.5 million circulating supply X $172/ETH)
- Ripple is third at $8 billion (44 billion circulating supply X $0.19/XRP)
- Tether is fourth at $6.4 billion (6.4 billion outstanding offer X $1/USDT)
- Bitcoin Cash is fifth at $4.3 billion (18.3 billion outstanding supply X $234/BCH)
How does market capitalization affect altcoins?
Market capitalization is a primary measure of total value. When altcoins have a high market capitalization, they are usually seen as more reliable – based on the assumption that more people have invested in that cryptocurrency – and when they have a low market capitalization they are seen as speculative, new and less reliable cryptocurrencies.
Altcoin’s market cap is an important measure against Bitcoin for industry adoption. If it is lower than Bitcoin, it means that there is less attention and paid investment to altcoins. A lower market capitalization of altcoins also implies less activity on their respective platforms and applications. The reverse is also true.
Is high market capitalization good or bad?
A large market cap is certainly good for the single cryptocurrency, but it is not always the best for investors. Sometimes small-cap coins have much more room for growth than larger coins.
Meanwhile Bitcoin is so important to cryptocurrency in general that it tends to drive up all altcoins, whenever its total market capitalization reaches new all-time highs.
Are coins with small market capitalizations risky?
As a general rule, yes. But, once, Amazon was valued at less than $500 million mcap when it first went public, and Apple was just over $100 million mcap when it went public — so finding coins/Small Market Cap companies (also known as smallcaps) can be a great way to get into the next big thing early. This leads to a lot of speculation occurring in small caps, with most of them ending up not expanding, but then there are the long shots that become large caps or even mega caps like Amazon and Apple (Ethereum, Ripple).
Can market capitalizations be manipulated?
Yes. Market capitalizations can be manipulated by manipulating the price of money. This often happens in small-cap coins that have low active trading volume and low circulating supply, making it easy for someone to manipulate the price up or down with a few thousand dollars.
Are the market
capitalizations of coins equal to the capitalization of the stock market?
no. The formula is the same, but this is the commonality. The stock market capitalization reflects the stock value of the company, which means how much its ownership is worth. This has important implications for attracting business, credit and even operations. The market capitalizations of coins do not reflect the net worth of the company, because they are coins, not stocks, which means that they have no legal connection to the company, and therefore are more similar to currencies.
What are other important factors besides the market capitalization of cryptocurrencies?
There are actually a variety of different factors that affect cryptocurrency beyond mere market capitalization. You’ll come across small-cap coins that tend to outperform their larger rivals because they simply have more room to grow. Here are some of the metrics to consider when it comes to cryptocurrencies:
price
This is a component of market capitalization, but it has its implications. Low-priced coins, such as Ripple, can move more in percentage terms than more expensive coins such as Bitcoin, just because the difference of $ is much smaller, so investors perceive it differently.
Active trading volume
As mentioned above, lower prices can also make it more prone to manipulation, but this is also based on a low volume of active trading. The greater the volume, the more accurately it reflects a “real” value of the coin.
Circulating supply and maximum supply
Circulating bid is the total amount available to users
right now and Max Supply is the maximum amount of coins that will be available to users in the future. For Bitcoin this is the well-known amount of 21 million. These two are important because if the coin has a low circulating supply compared to the maximum supply (such as XRP, 44b compared to 100b max supply) it becomes risky for investors as this uncirculated supply can flood the market in the future and cause prices to collapse (such as XRP).
volatility
This is a component of all the above factors. The less circulating supply, the lower the active trading volume and the lower the price, the higher the volatility. Volatility can be good or bad, depending on what your risk and reward goals are.
