Definition
For a cryptocurrency like Bitcoin, the market cap is the total value of all coins that have been mined. Its calculation is done by multiplying the current market price of one coin by the number of coins in circulation.
Market cap is the total dollar value of all of a company’s shares, or, in the case of Bitcoin, all of the coins that have been mined.
A cryptocurrency’s market cap is a rough gauge of how stable it is. It can be used to evaluate an asset’s potential to be volatile. For most digital currencies, a large market cap is more likely to be stable than a smaller one.
On the Bitcoin website, there are references to both the circulating supply and fully diluted supply. For Bitcoin, the former refers to the coins that have been mined, while the latter refers to the coins that will eventually be mined.
Why is market cap important?
Market cap is often used to evaluate the intrinsic value of a cryptocurrency. It can also help investors make informed decisions about safety and growth potential.
To demonstrate, let’s compare the market cap of two fictional cryptocurrencies.
If Cryptocurrency A has 400,000 coins in circulation and each coin is worth $1, it’s market cap is $400,000.
If Cryptocurrency B has 100,000 coins in circulation and each coin is worth $2, it’s market cap is $200,000.
Although the price difference between Cryptocurrency A and Cryptocurrency B is greater, the market cap of Cryptocurrency A is still higher.
Still, it’s also important to note that many cryptocurrencies’ market cap can swing dramatically due to their volatility.
What can you do with market cap?
Market cap is often used to compare the total value of two cryptocurrencies. It can also be used to evaluate the safety and potential profitability of a given coin.
Large-cap cryptocurrencies, such as Ethereum and Bitcoin, have a market cap of over $10 billion. They are considered lower risk investments due to their track record of continuous growth.
Mid-cap cryptocurrencies have a market cap of between $1 billion and $10 billion. They are considered more stable and have higher potential upside.
Smaller-cap cryptocurrencies are prone to sudden swings due to their volatile nature. Market cap is only a metric that can be used to evaluate the total value of a given coin.
