Understanding Market Cap
One of the first and most important concepts crypto beginners must understand is ‘Market Capitalization’. It will be difficult to navigate the crypto world without grasping this concept as it is one of the most commonly used methods of evaluating the size of a crypto project. Market cap is what we use to estimate the current value of a Crypto-Currency, but it is also used as a tool for predicting the upside potential that your investment has.
How to calculate Market Cap
The ‘Market Capitalization’, or ‘Market Cap’, of an asset is its trading price, (in the case of crypto this is the price of one token), multiplied by its total circulating supply. So, Market Cap = price of one coin x circulating supply
Bitcoin currently has a trading price of roughly $40,000 per $BTC and there are currently roughly 18,500,000 $BTC ($18.5 million) in circulation. Therefore the Market Cap of Bitcoin is $740,000,000,000 ($740 billion).
How to use Market Cap as a trading tool
Market Cap can be a great way of determining the potential of a crypto project. The lower the market cap of a crypto-currency the less money (inputed into the crypto in total) required to multiply your investment. If A has an initial market cap of $5 and B has an initial market cap of $10, for A to be worth 2x more than it is initially it would require a growth of $5 in market cap, whereas for B to 2x it would require a growth of $10. So, it is harder for B to 2x than A. Understanding this principle can help you make money in crypto because it shows you that pursuing low market cap cryptos can offer the greatest returns. Market cap is a great way of determining the theoretical ‘ceiling’ of a crypto-currency. Comparing the market caps of similar crypto projects (i.e. projects tackling similar issues, e.g. comparing insurance cryptos to other insurance cryptos, or storage coins to other storage coins) you can estimate the future potential value of a crypto-currency.
Currently Gold has a market cap of $12 trillion, if you believe that Bitcoin is the ‘digital gold’, and that it will challenge Gold as the primary store of value/hedge against inflation, then a realistic ceiling for Bitcoin is a market cap of $12 trillion. Therefore, for Bitcoin to be of equivalent value to Gold, Bitcoin would have to grow by over sixteen times what it is worth now. This would make 1 $BTC worth roughly $640,000. ($640,000 x $18,500,000 = $12 trillion) (price of one coin x circulating supply = Market Cap)
Furthermore, if you believe that Bitcoin has properties which make it better than gold (as a store of value/hedge against inflation etc…) Bitcoin’s market cap could theoretically even surpass that of Gold’s.
Common Beginner Mistake
One of the most common mistakes crypto beginners make is focusing too much on a crypto-currencies trading price rather than its Market Cap. The trading price of a crypto does not tell you much that is relevant to your investment.
For example the trading price of $DOGE is $0.40 and the trading price of $LINK is $31. Many beginners will assume that they are earlier to $DOGE and that it is a better investment because the coin is cheaper. In actual fact $DOGE has a market cap of $56 billion compared to $LINK which has a market cap of $13 billion, meaning that $DOGE is already over 4 times larger than $LINK. Therefore, it will require less money inputed into $LINK for it to do 2x than for $DOGE to do 2x.
Market Cap vs Fully Diluted Market Cap
It is important to understand the difference between standard ‘Market Capitalization’ and ‘Fully Diluted Market Capitalization’. The difference is fairly simple, Market cap is calculated using the circulating supply of a token, whereas Diluted Market Cap is calculated by using the total supply of a token.
The Market Cap of Bitcoin is $740 billion, whereas the Diluted Market Cap of Bitcoin is $840 billion. This is because the total supply of Bitcoin is 21 million $BTC but the circulating supply is only roughly 18 million $BTC. (For more info on why the circulating supply is different from the total supply look out for future articles)
How to find undervalued Alt-Coins using Market Cap
Live Nation Entertainment Inc. (LYV), the parent organisation of Ticketmaster has a market cap of $19 billion, this can be used as a realistic ceiling for other ticketing companies. Of course, this is not a realistic ceiling for all rival ticketing companies, but for ticketing companies who are innovative and objectively better, this can act as a good indication of the size of the relevant market, and clearly absorbing even a small percentage of the market share from Ticketmaster can be extremely lucrative for competing companies and investors.
The blockchain alternative to standard ticketing services is NFT ticketing, developed by Get Protocol. Get Protocol has a utility token called $GET, which currently has a market cap of only $70 million. This is more than 100x less than that of Live Nation Entertainment Inc. For more info on $GET check out this great article.
Conclusion
Market Cap is a great investment tool to have at your disposal, but it has its limitations. The way we determine which Crypto-Currencies to invest in involves utilising Market Cap, but also a host of other principles. We will soon be publishing our full Alt-Coin investment strategy, which will outline all the other tools that we use. More in depth breakdowns of these crypto investment tools will happen in articles such as this one. Have a look at what we hold in our crypto portfolio here, follow us on Twitter for up to date Crypto News and Alt-Coin Clues, and find more of our introduction to crypto articles here.
What Is Market Cap in Crypto?
Importance of Market Capitalization to an Investor
Classifying Cryptocurrencies Using Market Capitalization
Fully Diluted Market Capitalization
Comparing the Values of Cryptocurrencies
Effectiveness of Using Market Capitalization to Assess Investment Opportunities
Conclusion
There is no doubt that there are many investment instruments in the decentralized financial sector as well as in the traditional market. This creates a dilemma for investors who want to find the best combination of securities to invest in. Of course, there are different ways of evaluating the market performance of the assets such as using fundamental analysis which deals with analysing the key aspects of a business such as management style, the balance sheet and profit and loss statements, among others. However, in the crypto sector investors also assess the market capitalization of a project. Studying an organization’s market capitalization will help you to understand its development and other attributes.
What Is Market Capitalization?
In the blockchain sector, market capitalization refers to the total market value of a cryptocurrency or any other digital assets. For public companies market capitalization means the total value of its shares or stocks. It is easy to calculate the market capitalization of a cryptocurrency. You simply multiply the total number of cryptocurrency by its current price. For crypto organizations that use initial coin offering (ICO), the initial market capitalization is established after the ICO. Remember as well that the cryptocurrency’s market capitalization is not a fixed figure. Instead, it changes from time to time whenever there is a fluctuation of the price.
Source: Blockgeeks
Market capitalization = current price of the token X the number of tokens in circulation.
After the initial coin offering phase, the market capitalization, popularly referred to as the market cap, is determined by the supply and demand of the cryptocurrency. In general, we use the circulating supply to calculate the market cap of a cryptocurrency. However, some organizations use the token’s total maximum supply figure to calculate the market capitalization. In this case, the value we get is called a fully diluted market cap. We shall discuss this in detail later.
Importance of Market Capitalization to an Investor
Market capitalization shows the size and potential of a cryptocurrency. The size of the cryptocurrency in terms of market capitalization is very important as it determines the other variables which investors analyze before investing in the company. In the crypto sector, the size of the market cap has great bearing on the confidence of the investors. Normally, cryptocurrencies which have higher market capitalization are more stable than those with smaller ones.
Likewise, investors use market capitalizations of cryptocurrencies to determine the potential for growth. Usually, they are more willing to invest in cryptocurrencies that have high market capitalization. That is the reason why Bitcoin, Ethereum and Binance Coin get more investments than the cryptocurrencies that are outside the top 20 range, for example.
The market capitalization of cryptocurrencies is a very good indicator for investment for many novice investors in the blockchain sector. Such investors normally gauge the viability of a crypto investment based on the market capitalization and its current price. Even if some novice investors may not be aware of the exact market cap of cryptocurrencies, they use their ranking from popular crypto aggregators such as CoinGecko and CoinMarketCap to make their investment decisions. Some people simply opt to invest in cryptocurrencies that are within the top 10, based on market capitalization. As such, they may just visit CoinMarketcap and select the best performing cryptocurrencies at that particular moment.
Classifying Cryptocurrencies Using Market Capitalization
It is a common practice to classify the sizes of cryptocurrencies using market capitalization. They are classified as large cap, medium cap and small cap cryptocurrencies.
Large Cap Cryptocurrencies
Large cryptocurrencies have a market capitalization of at least $10 billion. Most of these are cryptocurrencies that have been in existence for a long period and are firmly established. Also, these are cryptocurrencies that are highly ranked at crypto aggregators. Although It does not always mean that investing in these cryptocurrencies will bring high rewards, they tend to have more stable prices than the other tokens. Examples of large cap cryptocurrencies are Bitcoin, Ether, Cardano (ADA) and Ripple (XRP). Many investors consider large cap cryptocurrencies as low-risk investment assets since they have maintained sustainability and liquidity over time.
Medium Cap (Mid-Cap) Cryptocurrencies
The mid-cap cryptocurrencies have a market capitalization of between $2 billion and $10 billion. Normally, these are well-established tokens or coins which have the potential for growth in the future. They have more risks than large cryptocurrencies. Examples of mid-cap cryptocurrencies are Axie Infinity (AXS), Stellar Lumen (XLM), VeChain (VET), Polygon (MATIC) and Internet Computer (ICP).
Small Cap Cryptocurrencies
These are cryptocurrencies that have a market capitalization of between $300 million and $2 billion. Most of these may be recently established cryptocurrencies with potential for growth. Some of these cryptocurrencies are for very promising projects with innovative products. Many of these offer DeFi and gaming products.
Fully Diluted Market Capitalization
So far, the market capitalization we discussed is based on circulating supply. Circulating supply refers to the quantity of a cryptocurrency which is currently on the market. This is different from the maximum supply, which includes the tokens or coins which are not yet in the market. In the case of Bitcoin the maximum supply is 21 million, yet the circulating supply is 18, 970,300. The circulating supply is less than the maximum supply because some BTC are yet to be mined. Therefore, fully diluted market capitalization is based on the maximum supply of a cryptocurrency, but the method of calculation remains the same.
Comparing the Values of Cryptocurrencies
You can find the values of different cryptocurrencies on crypto aggregators such as CoinGecko and CoinMarketCap or on exchanges. Most of these platforms provide real-time values of the cryptocurrencies. However, CoinMarket seems to be the most used aggregator.
Effectiveness of Using Market Capitalization to Assess Investment Opportunities
It is clear that a cryptocurrency’s market capitalization gives an indication of its level of risk. However, some analysts have raised a few red flags of using market capitalization to evaluate the investment potential of a cryptocurrency. For example, they argue that the cryptocurrency’s market capitalization is not a very reliable tool for assessing the investment potential of a cryptocurrency. The reason is that some cryptocurrencies are over-valued while others are undervalued.
A related argument is that some projects manipulate the prices of the cryptocurrencies in order to lure investors. Therefore, market capitalization derived from manipulated prices does not give a realistic investment potential of a cryptocurrency. Also, market capitalization reflects the price of the cryptocurrency, not its value. The cryptocurrency’s inherent value depends on its utility.
These arguments should not make you think that a cryptocurrency’s market capitalization is not useful in evaluating its investment potential. Rather, the point is you should use a combination of tools when evaluating the performance of a cryptocurrency. And clearly, market capitalization should be among these tools.
Conclusion
In short, market capitalization is about how valuable a cryptocurrency is. Since one of the variables of market capitalization is the price of the asset, the demand and supply of the cryptocurrency determine it. We get the value of the market cap by multiplying the current price of the cryptocurrency by the circulating supply. In terms of the fully diluted market cap we multiply the cryptocurrency’s maximum supply by the price. Although the market cap is an essential tool for assessing the market performance of an asset, it is important to use it alongside other criteria. Currently, the easiest way to find the market capitalization of a cryptocurrency is to get the current figure on any of the crypto aggregators.
Что такое начальная рыночная капитализация?
Рыночная капитализация является важным показателем, используемым инвесторами для оценки стоимости компании. Это мера общей рыночной стоимости компании, рассчитанная путем умножения общего количества ее акций в обращении на текущую рыночную цену за акцию. Однако, когда компания становится публичной, важно понимать концепцию начальной рыночной капитализации. Начальная рыночная капитализация — это рыночная стоимость компании на момент ее первичного публичного предложения (IPO). В этой статье мы обсудим, что такое начальная рыночная капитализация, как она рассчитывается и почему она важна для инвесторов.
Понимание рыночной капитализации
Прежде чем углубляться в концепцию начальной рыночной капитализации, важно понять рыночную капитализацию. Рыночная капитализация, также известная как рыночная капитализация, является мерой общей рыночной стоимости компании. Он рассчитывается путем умножения общего количества акций в обращении на текущую рыночную цену за акцию. Рыночная капитализация является важным показателем, используемым инвесторами для оценки размера компании, потенциала роста и общей стоимости.
Определение начальной рыночной капитализации
Начальная рыночная капитализация — это рыночная стоимость компании на момент ее первичного публичного предложения (IPO). Акции компании впервые выставлены на продажу. Начальная рыночная капитализация определяется путем умножения общего количества акций, предлагаемых во время IPO, на цену первоначального размещения за акцию.
Факторы, влияющие на начальную рыночную капитализацию
На первоначальную рыночную капитализацию компании могут повлиять несколько факторов, в том числе размер IPO, финансовые показатели компании, рыночные условия и настроения инвесторов. Размер IPO может существенно повлиять на первоначальную рыночную капитализацию, поскольку чем больше акций предлагается, тем выше рыночная капитализация. Финансовые показатели компании и потенциал будущего роста также играют важную роль в определении ее первоначальной рыночной капитализации. Рыночные условия, такие как общее состояние экономики и настроения инвесторов, также могут повлиять на первоначальную рыночную капитализацию компании.
Расчет начальной рыночной капитализации
Чтобы рассчитать начальную рыночную капитализацию компании, вам необходимо знать общее количество акций, предлагаемых во время IPO, и начальную цену размещения за акцию. Получив эту информацию, вы можете умножить общее количество предлагаемых акций на начальную цену предложения за акцию, чтобы определить начальную рыночную капитализацию.
Важность начальной рыночной капитализации
Начальная рыночная капитализация является важным показателем для инвесторов, поскольку она дает представление о стоимости компании и потенциале роста. Это также важный показатель для самой компании, поскольку он может повлиять на ее способность привлекать капитал в будущем и привлекать инвесторов. Высокая начальная рыночная капитализация может свидетельствовать о высоком спросе со стороны инвесторов и уверенности в будущем потенциале роста компании.
Примеры начальной рыночной капитализации
Одним из примеров компании со значительной начальной рыночной капитализацией является Facebook. Когда Facebook стал публичным в 2012 году, его первоначальная рыночная капитализация составляла 104 миллиарда долларов. Другой пример — Alibaba, которая стала публичной в 2014 году с начальной рыночной капитализацией в 168 миллиардов долларов.
Вывод: значение начальной рыночной капитализации
В заключение, начальная рыночная капитализация — это рыночная стоимость компании во время ее первичного публичного предложения (IPO). Это критический показатель для инвесторов, позволяющий оценить стоимость компании и потенциал роста. Начальная рыночная капитализация определяется путем умножения общего количества акций, предлагаемых во время IPO, на цену первоначального размещения за акцию. На первоначальную рыночную капитализацию компании могут повлиять несколько факторов, в том числе размер IPO, финансовые показатели компании, рыночные условия и настроения инвесторов. Понимание начальной рыночной капитализации необходимо инвесторам для принятия обоснованных инвестиционных решений, а компаниям — для привлечения инвестиций в будущем.
What Does Market Cap Mean In Crypto?
Investors use market capitalisation (market cap) to estimate the value of a public company’s shares. But what does market cap mean in crypto? Let us have a look at the traditional stock market first.
Traditional stock market caps are the number of outstanding shares in a company multiplied by the value of one share. For example, a company might have 500 shares outstanding, and the value of a share is $5. The company’s market cap would be $2,500.
What Is Market Capitalisation?
Market caps have three categories: Large, mid, and small. The dollar value of a company or cryptocurrency determines its overall value.
Companies initiate market cap through an IPO (Initial Public Offering). Companies attempt to sell their shares to the public during an IPO. Before this, investment banks determine the amount and prices of a company’s shares.
After a company is listed on an exchange, supply and demand, determine the price of the shares. The more the shares are in demand, the higher their price. But if investors sell large shares, the share price drops. Hence, market cap (outstanding shares x value of one share) is a fairly accurate assessment of a company’s value.
Companies with a value of $10 billion or more are large caps. They are well-established and provide investors with modest returns and sustained long-term growth.
$2 billion to $10 billion in mid-cap. These are companies in an industry with rapid growth. They are riskier than large-cap companies, but their potential growth is higher. This means that mid-cap companies might bring greater returns in the short term.
Small-cap companies are below $2 billion and more than $300 million. They are the riskiest and potentially have the greatest returns. They are susceptible to economic declines due to their lack of resources.
Investors use market caps in stocks to have an overview of a company’s size. Traders find it useful when making short-term trades because it is a good indicator of showing the value of a company’s stock alone.
But it is not the full picture. Companies might have valuable shares, but it does not equal a valuable company. Potential buyers of a company need to look at a company’s debt and balance sheets.
So, What Does Market Cap Mean In Crypto?
The cryptocurrency market cap is different from the stock market cap. The total amount of coins in circulation is multiplied by the value of one coin. For instance, if there are 200 coins in circulation, and the value of each coin is $2, the cryptocurrency’s market cap is $400.
Cryptocurrency traders and investors can use the market cap to estimate the value of cryptocurrencies for short-term and even long-term investments. These currencies are historically volatile, so there might be greater risks, returns, and losses than in traditional stock trading.
Bitcoin, Ethereum, and Ripple are large-cap cryptocurrencies. Like, large market cap companies, these currencies have a large user base, and the value of the coins is mostly stable. Investors could gain small or no returns, but there are long-term benefits for future crypto-to-fiat currency exchange.
Mid-cap crypto is less stable than large-cap crypto but has much growth potential. This means that the crypto is in a strong position of value, but it can gain more value in the future. It can expand its network and increase its utility. Mid-cap cryptocurrencies allow investors to receive returns from their expansion.
Small-cap crypto provides the biggest returns of the three market caps. These are a start-up or emerging currencies that are experiencing fast growth in the market. The values of the coins depend on the crypto market as a whole, and this causes small-cap crypto to be much more volatile than the other market-cap cryptos.
More and more coins will be added to circulation, so the demand and use of the coins might also increase quickly, but the opposite might also occur. Investors and traders could instantly lose their investments because the coin’s value rapidly drops or the cryptocurrency fails.
Whales In Crypto
Market cap is a reliable barometer for viewing the value of coins, but whales could skew the results. Whales are investors who purchase large amounts of cryptocurrency and do not spend it. They store the coins in a wallet.
Whales have been operating since the early days of crypto. They bought coins when the values were down and did not spend them. Some whales own large proportions of coins, so the circulation of the currency is heavily affected.
Some whales are criminal organisations. These whales gain crypto through illegal activities, like the silk road trading network, which offers illegal products and services for coins. They also store their proceeds in wallets and are reluctant to use their coins regularly.
Now, whales control the market by placing large buy or sell orders. A whale might want to purchase 20% of the total coins in circulation. This would increase a cryptocurrency’s market cap because there would be a great demand for coins, increasing the coin’s value.
It has the opposite effect when a whale sells 20% of its coins. It would push down the value of the coin.
If a whale does purchase a large proportion of coins and does not spend them, it would drive down a crypto’s coin value. The fewer coins that are in circulation, the lower the market cap. Ultimately, a whale’s influence lies in its powerful buying and selling power.
Investment Risks For Crypto Market Caps
In understanding what market cap means in crypto, consider that small-cap crypto carries the most risk for investors. They are highly volatile. Their coin value fluctuates daily or even hourly. Investors could lose all their funds but also make a quick profit. Therefore, small-cap crypto is popular among traders. The risk is high, but the rewards are high too.
Mid-cap crypto is a safer option for investors because they are much less volatile than small-cap crypto. They are also expanding, so investors might see their coins steadily increase in value as the crypto grows and adds more coins into circulation. That said, potential mid-cap returns are lower than small-cap returns.
Large-cap crypto is relatively stable. There are a lot of coins in circulation, and the coin’s value does not fluctuate regularly. Investors could purchase these coins for long-term returns due to modest growth over a long period. It is the safest investment option in crypto.
Investors should invest in a combination of these crypto market caps. Diversifying your investments is a proven method of minimising risk, but due to crypto’s volatile nature, there are more aspects to consider than a crypto’s market cap or varying investments.
| PLAY CRYPTO CASINO GAMES NOW AT BC.GAME |
Other Methods Of Assessing Crypto Value
The market cap provides a broad view of a crypto’s value, but investors can use other methods of gauging a coin’s value. They could look at a crypto’s token velocity. Also, they can use a network value (market cap) to the Metcalfe ratio.
Metcalfe’s law dictates that a network’s value is proportional to the square of the total number of active users. For example, if there are 200 users on a network, the network value would be 40,000. Taking the Metcalfe law and dividing it by the network value of a cryptocurrency is the network value to Metcalfe (NVM) ratio.
A high NVM ratio means that the market overvalues a specific coin or the coin is expected to grow in users. Also, they can use this ratio to determine undervalued coins. A lower NVM ratio could indicate a good time to buy cryptocurrency.
An investor should also consider token velocity. This is the number of times a coin is used in a transaction. An investor takes the total transaction volume (TTV) of a coin in dollars and divides it by the currency’s market cap (MC). If TTV is $2,000 and MC is $5,000, the token velocity would be 0.4. This indicates that investors and traders hold on to their coins more often.
A high token velocity would mean traders spend their coins at a high rate. This would decrease a coin’s value because there is less demand.
Investors and traders need to look at the NVM ratio, token velocity, and market cap to assess the value of a coin. But it is important to remember that cryptocurrencies are not the same as the stock market. They are more volatile, and there are few long-term benefits for investment.
Final Thoughts
Market cap is a useful method to assess whether crypto is worth investing in quickly. Investors can see whether crypto is large, mid, or small-cap.
Yet, the market cap is only one method of gauging value. Investors should also consider token velocity, cryptocurrency whales, and the NVM ratio of crypto. This will provide a much clearer assessment of a cryptocurrency’s value.