Published Jun, 29 2023

Crypto Market Capitalization and Why It Matters

Market capitalization is a term frequently used in traditional finance. It refers to the total value of a company and is a common statistic for those who are looking to raise money from venture capital funds or angels. To calculate the market capitalization of a company, all you need to do is multiply the number […]
Crypto Market Capitalization

Market capitalization is a term frequently used in traditional finance. It refers to the total value of a company and is a common statistic for those who are looking to raise money from venture capital funds or angels. To calculate the market capitalization of a company, all you need to do is multiply the number of shares outstanding by the price per share. However, this calculation is now being applied to cryptocurrencies. In this article, we’ll talk about what crypto market capitalization means for digital currencies and what other factors might be important to understand.

Market Capitalization in Crypto

Market capitalization in crypto is similar to market capitalization in the stock market. Rather than multiplying the total outstanding shares by the price per share, you multiply the total number of available coins by the current price per coin.

While the calculation is the same, there’s one critical difference between these two types of market capitalization. The market capitalization of a company represents how much equity is in the company. It’s a representation of ownership. The crypto market capitalization of cryptocurrency does not represent stock.

If every single Bitcoin in existence were cashed out at the same time by the same person, the total value of the Bitcoin they owned would be equal to the market cap for Bitcoin. At the time of this writing, with about 19.6M Bitcoin in circulation at a price of $42,000. Its crypto market cap is roughly $835B.

You can also refer to the market cap of a cryptocurrency as the total value, and you can perform this calculation with any crypto.

There are also sites that allow you to follow the market cap of coins in real-time, so doing the calculation yourself really isn’t necessary.

You can also calculate the total crypto market cap by combining the market cap of all cryptocurrencies. This number is now above one trillion.

Circulating Supply

The circulating supply has a lot to do with the market cap, so let’s review what it means. This is the total number of coins currently in circulation and available to users. You can have a high circulating supply and a lot of crypto market cap. This happens when coins are only worth a few dollars or less.

It’s also possible to have a low circulating supply and a high market cap, but this doesn’t happen frequently. The price per coin would have to be incredibly high.

The Biggest Crypto Market Cap

It probably won’t surprise anyone that Bitcoin maintains the highest crypto market capitalization to date. At a market cap of $495B, it far surpasses the market cap of publicly traded companies like IBM, Johnson & Johnson, and Visa.

How Does Crypto Market Capitalization Affect Coins?

Just like with companies that have a large market cap, coins with a large crypto market capitalization are typically viewed as more reliable. When you’re worth more money, it means more people have purchased your products, shopped in your stores, and responded to your marketing efforts.

The same goes for cryptocurrency. A larger market cap would indicate that more people are purchasing, trading, or otherwise using that specific crypto. A low market cap would indicate otherwise. If not many people use it, it will be viewed as less reliable, new, or speculative.

The Good, the Bad, and the Ugly

So, is high market cap good or bad? It depends. While a high market cap is great for the cryptocurrency itself, that doesn’t mean it’s good for the people purchasing it. Coins with smaller market capitalization have more room for growth, and you may get more of a return.

However, that’s not always the case. All cryptocurrency tends to fluctuate, and sometimes unpredictably. Sure, Bitcoin’s market capitalization is incredibly high, but with the next halving in 2024, it will most likely go up, as it typically does after such an event.

In addition, Bitcoin is such a huge player in crypto that its value tends to do a good job of driving the value of other coins up as well. This can be especially true when its total value hits an all-time high.

Other Factors to Consider in Crypto Market Capitalization

There are a few other things to think about when looking at the market cap of crypto. Here are some of the metrics that can influence the market capitalization of any given currency.

Manipulation

It is especially easy to manipulate the market cap of a small-cap coin. If a coin has low supply or a low active trading volume, it only takes a few thousand dollars to create a surge in circulation, thus increasing the market cap.

Price

While price is a core component of calculating crypto market cap, it has other implications. Coins that have lower prices can move more in terms of percentage than those with higher values. Because the value is lower, it doesn’t take much of an influx of trade volume to influence the price, and therefore the market cap.

Active Trade Volume

As we’ve already mentioned, lower prices make the coin more prone to manipulation. However, it also relies on a low active trading volume, to begin with. Increasing the trading volume changes the perception of the coin and its value. This encourages even more active trading, and increasing price and crypto market capitalization.

Circulating Supply & Max Supply

While the circulating supply directly affects the market cap calculation, it’s important to understand the max supply of a coin as well. If the circulating supply is significantly lower than the max supply, it’s possible (and it’s happened before) that this uncirculated supply could flood the market and cause prices to crash.

Volatility

The volatility of a cryptocurrency combines all of the factors above into one idea. This tends to send shivers down the spines of many. The fewer coins in circulation, the lower the active trading volume, which lowers the price and increases volatility. This can be a good or a bad thing depending on your aversion to risk.

Join In!

You don’t have to understand crypto market capitalization to be a part of it. It’s as simple as heading down to a Bitcoin Depot BTM, following the instructions, inserting some cash, and adding BTC to your wallet. It’s easier than ever to find a Bitcoin Depot BTM since there are thousands spread across the United States