What is Market Capitalisation?
Market Capitalisation, or Market Cap, is the total dollar value of all the shares of a company’s stocks. In the case of cryptocurrency, it’s the total value of all the coins that have been mined. Through market cap, we can determine the popularity and dominance of different cryptocurrencies over the longer term. A higher market cap means more stability and therefore, more dominance in the crypto market.
The market cap of a cryptocurrency is derived by multiplying the total number of coins mined by the current price of a single coin. For example, if one coin of a cryptocurrency is $10 and there are 4,000,000 coins in circulation, then, the market cap of that cryptocurrency would be $40,000,000.
When a cryptocurrency has a relatively larger market cap, it can deal with volatility much better and is a more stable investment whereas cryptocurrencies with smaller market caps are on the opposite side of the fence and have to deal with dramatic gains and losses.
Importance of Market Capitalisation
The price of a cryptocurrency may tell its value but Market Cap is used by investors to determine its total value in the market over other cryptocurrencies and its growth potential and stability.
For example, the price of X cryptocurrency is $5 per coin with 200,000 coins in circulation and therefore, has a market cap of $1,000,000. Y cryptocurrency’s price per coin is $2 with 600,000 coins in circulation and therefore has a market cap of $1,200,000.
Even though the price per coin of X is higher, its market cap is lower which means its popularity and level of stability are also lower than Y.
This shows that price isn’t everything when investing in cryptocurrency. Therefore, the market cap is given more attention than just the price of a cryptocurrency because it gives a more detailed insight to the investor, after all, it’s calculated by considering the price.
One thing to keep in mind is that Market Cap is different from the money inflow in the market. It doesn’t represent how much money is in the market. If the price of the cryptocurrency increases from $10 to $15 with 4,000,000 coins in circulation, then the market cap will increase from $40,000,000 to $60,000,000.
This doesn't mean there was an inflow of $20,000,000 in the market. It is just the increase in the total value of the cryptocurrency and not the money invested in the market.
Division of Cryptocurrencies based on Market Cap
Source: COIN360
Large-Cap Cryptocurrencies
The cryptocurrencies with a market cap of $10 billion or more, such as Bitcoin and Ethereum, come under this category. Large-cap cryptocurrencies are generally considered to be safe investments since they show stability and often have more liquidity. Investing in large-cap cryptos is a conservative strategy.
Mid-Cap Cryptocurrencies
These cryptocurrencies have market caps between $1 billion and $10 billion. Mid-cap cryptos are considered to be more volatile and have higher risks but they also have larger growth potential.
Small-Cap Cryptocurrencies
Cryptocurrencies with a market cap below $1 billion are categorized as small-cap cryptos. They are extremely volatile and are highly risky. These cryptos are more vulnerable to dramatic gains and losses; for a short time, they might show high potential growth but then crash the next minute.
Market cap doesn’t really say anything about actual trading volumes over the last couple of hours. Currently, Coinmarketcap is the most popular website for keeping track of cryptocurrency market cap and getting an insight into how popular each coin is. It also includes the most widely used cryptocurrency index, which includes all key financial parameters for cryptocurrencies.
All prices on Coinmarketcap are determined using a volume-weighted average of all prices from various exchanges. It is to be kept in mind that it's more crucial to track a cryptocurrency’s circulating supply than its entire supply since it’s the supply that’s currently available in the market.
Largest Cryptocurrencies by Market Cap
1. Bitcoin (BTC)
Market Cap- 615.61 billion USD. Whenever a discussion about cryptocurrency begins, Bitcoin is the first thing that comes out of every month. It's highly volatile, one day it's at its highest peak and the next the price dramatically falls to half of the value. Despite its instability, Bitcoin has established a strong position in the cryptocurrency market.
Unfortunately, Bitcoin's recent market trend has not been encouraging. Since Elon Musk decided against accepting Bitcoin at Tesla and China's suppression of Bitcoin mining, the digital currency has taken a beating. Though it's being said that it's only a temporary fall.
2. Ethereum (ETH)
Market Cap- 290.32 billion USD. A tough rival of Bitcoin, Ethereum is a blockchain-based cryptocurrency. Cryptocurrencies with the blockchain platform are considered safer to invest in. Ethereum is a decentralized public ledger for verifying and recording transactions. Since Bitcoin’s fall in the market, Ethereum, being the next best thing, has been tightening its grip on the crypto market and it might just take over Bitcoin.
3. Tether (USDT)
Source: Coindesk
Market Cap- 62.32 billion USD. Different from other cryptocurrencies, Tether is a special type of cryptocurrency called stable coin and is backed by an equivalent amount of fiat currencies such as USD i.e. 1 Tether is worth 1 US dollar. It is a unique cryptocurrency backed by real-world assets or commodities that assure value stability and lower market volatility.
Though it has seen widespread acquisition and exchange in recent years, there were questions and allegations about it being fully backed by cash reserves and a lot of drama happened.
4. Binance Coin (BNB)
Source: Coinfomania
Market Cap- 53.39 billion USD. Another rival for Bitcoin and Ethereum, Binance Coin has become pretty well-known and has been steadily rising in value since the start of 2021. But because of Elon Musk’s fallout with Bitcoin, Binance Coin was also hit with a 15% drop in its price, but it rose right away and has since been stable.
Written By - Sanjana Chaudhary
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