With 1855 Cryptocurrencies available and a total market cap of $ 212 Billion, the cryptocurrency market may be worth exploring for investors with an appetite for risk or a need to diversify. But what exactly does the crypto market cap represent, why does it matter, and how can it help you evaluate a coin?
How Is It Calculated?
Market Capitalisation is a metric that gives us information on the relative size of a cryptocurrency. We can calculate it by multiplying the number of outstanding coins in circulation with their current price.
Market Cap = Price X Circulating Supply.
How Can We Calculate the Market Cap of Bitcoin?
On 19/8/2018 the circulating supply of Bitcoin was 17,219,225 BTC and the price per BTC was $6,384.91. According to our formula, the total market cap of Bitcoin, in this case, is $109.9 Billion.
Why is the Cryptocurrency Market Cap Important for Investors?
Contrary to the stock and bonds market, in the cryptocurrency market, financial statements that could provide metrics needed for investors to make decisions are not published by the crypto teams. Therefore, the market cap figure provides a quick and easy way to estimate the value of a particular cryptocurrency or, if you are really into calculating, the entire crypto market.
What Can We Learn from Observing the Cryptocurrency Market Cap
The truth is that by analysing and observing the crypto market cap of the various coins – such as Bitcoin, Ripple, Ether and Litecoin – we can gather valuable insight into each coin. A high or low market cap can reveal a coin that is resistant to volatility, or vulnerable.
Coins with small market caps are more volatile to the external environment and to sudden positions of large buyers. The price of a token with a small market cap can crash instantly if, for example, big traders cooperate in selling their coins at the same time. On the other hand, the probability of such a thing happening is smaller with Bitcoin and Ethereum, which have large market caps and are not easily manipulated.
The Downside of the Crypto Market Cap
Because the crypto market cap is a number that reflects only the amount of circulating coins and their price, it does not give us any information on how the coins are distributed, or how many individuals own cons – and in what amounts. This is a downside for the reason already mentioned above; if big traders and/or developers hold large amounts of the circulating coins, then they can retain control over or cause havoc with its direction.
To Conclude
A cryptocurrency’s market cap is a quick way to evaluate the coin’s value. A crypto market cap that is strong is indicative of a healthy coin. However, if developers or big traders hold a large amount of the coins, the market cap can mislead the investor. That is why it is important to combine it with other metrics and research before making an investment decision.
