Touted to be the next big thing in technology after the internet and Artificial Intelligence, blockchain has completely revolutionized digital finance. This advent of blockchain has attracted several investors to build their portfolios in the cryptocurrency market, leading to an increase in the crypto market cap.
The crypto market cap holds significant importance in all the financial markets, be it crypto, equity stocks, or forex. But market capitalization doesn't work all the same as in the other markets when it comes to cryptocurrency.
Stock market capitalization refers to the total value of a company's shares. Knowing the company's capitalization helps the investors evaluate the risks associated with investing in a company and build a balanced portfolio. But that's not the case with the crypto market capitalization.
This post will highlight everything you need to know about the crypto market cap and how you can consider it while building your strategy to start investing in cryptocurrencies.
What Is Crypto Market Cap?
Crypto market cap refers to computing the size of a cryptocurrency.
It is calculated as the product of the market price of a coin and the total number of that particular coins that are currently in circulation.
Let's consider a hypothetical example to understand this better.
Suppose a cryptocurrency's current market price is $20.00 and there are 10 million coins of that crypto in the supply; the market cap will be:
Crypto cap = price * supply, i.e., 20*10,000,000 = 200,000,000
Hence, the crypto market cap of the example coin is $200 million. Similarly, the cap of any cryptocurrency can be calculated using the given formula. Remember that since the cap is directly influenced by the current coin price, which is highly volatile, the crypto market capitalization can fluctuate significantly. When talking about the global cryptocurrency market capitalization, it is the sum of the cap of all the cryptocurrencies in the market.
The market cap majorly depends on supply and liquidity and not on the price. Almost all the cryptos have a circulation supply in millions of coins. Hence, even a small price fluctuation can lead to a significant difference in the cap. For better demonstration, let's consider two fictional cryptos, x and y.
- Crypto x is priced at $10 and has a supply of 500,000, and its market cap is $5,000,000.
- Crypto Y is priced at $9, just one less than X and has a supply chain of 1,000,000. This makes the crypto size $9,000,000.
As you can see in the above example, although the price of crypto Y is $1 less than that of crypto X, the supply leads to a difference of $4,000,000.
Why is Crypto Market Cap Important?
Companies in the stock market are classified as large-cap, mid-cap, and small-cap. But there's no such thing in the cryptocurrency market. The crypto market is relatively new and does not have any categories. However, some people still classify cryptos with a market size of over 10 billion as large caps and the others as mid-caps and small caps.
Market cap can be seen as the popularity of a cryptocurrency. If a blockchain network and the underlying crypto are popular, like Bitcoin, the chances of long-term growth are high. But it does not have anything to do with the risk. Regardless of the market size, all cryptocurrencies are volatile. Unlike the stock market, you cannot depend on the crypto market cap for a balanced portfolio.
It's very important to recognize that it's completely different from the stock market - Jully Alma - Taveras, Investing Latina.
Although the market cap of a cryptocurrency does not tell anything about the associated risks, it can tell you the bigger picture. The higher the market cap, the more chances of a bullish prediction are. It means that the cryptocurrency with more significant market capitalization can yield better returns in the future.
One crucial factor to consider while building a market-cap-weighted strategy is the difference in the caps. Since a slight price fluctuation can lead to significant changes, going with crypto with larger gaps in cap amount is advised.
The crypto market cap is a vital metric to consider for knowing the total value of cryptocurrencies, but you also need to understand other factors. For instance, you should also consider the market trend, crypto's stability, your risk appetite, recent day crypto market cap chart to make the right investment decision.
How The Crypto Market Cap Works?
The crypto market cap works depending on the price and supply of a coin or token. But you may find two references for capitalization — circulating supply and fully diluted supply.
The circulating supply market cap is what we have already seen and is the product of price and current coin supply. It is the popular way to calculate market capitalization, and most analysts use it. A fully-diluted supply market cap, on the other hand, is calculated by multiplying the product by the total number of coins that can be minted.
All cryptocurrencies have a diluted supply limit. Once this limit is reached, mining of that particular coin is stopped. Thus, no more coins are added to the market.
What Is The Current Crypto Market Cap?
The current cumulative crypto market cap stands over $2 trillion when writing this article. The capitalization has grown exponentially since 2016, until which it was below $20 billion. Since then, it has crossed the $3 trillion mark in November 2021. However, the journey was not smooth all the way.
Between May and June 2021, the crypto market saw a massive steep downwards. It was a consequence of the decision to ban cryptocurrency in China. In May 2021, The People's Bank of China, the country's central bank, announced a ban on mining all cryptocurrencies. As China was one of the largest crypto markets, it had a disastrous impact on cryptocurrency prices.
Chinese crypto crackdown took over half the world's miners offline virtually overnight. - CNBC
The good thing is that the crypto market, especially Bitcoin was able to recover from the crackdown within two months and was running upwards from August 2021 and later crossed $3 trillion for the first time in November 2021.
Will The Crypto Market Cap Reach $10 Trillion?
The cumulative capitalization has grown from $20 billion to $3 trillion within five years. Hence, there's no denying that there are all the chances that the crypto market cap can reach $10 trillion over the next few years. Thanks to the decentralization, security, transparency, trust, and several other benefits of blockchain, investors' trust in the cryptocurrency market is growing. The millennials primarily are investing more in the crypto market.
One of the primary reasons behind the growth of blockchain is the adoption by the corporate world. Blockchain technology, used for crypto transactions initially, can now help create smart contracts and dApps (Decentralized Applications). These new applications are helpful and have led to increased adoption of enterprise blockchain like Ethereum, thereby influencing crypto capitalization.
Another reason behind the exponential growth is the addition of new gen2 blockchain networks. These networks are built to solve some significant issues, like scalability and high transaction costs of the gen1 networks. As the number of new networks grows and people use blockchain applications ubiquitously, the global crypto market capitalization will fluctuate positively.
In fact, the crypto market cap reaching $10 trillion is a standard prediction that will become true by 2030. What's astonishing is that analysts believe that if the bearish run continues, Bitcoin alone can stand at a $100 trillion market cap in the future. Although this can be true, it is something very far off in the future.
Top 3 Cryptocurrencies With The Biggest Crypto Market Cap
There are over 8000 cryptocurrencies listed on the crypto market, each with a different capitalization. But only a few hold the dominance. Here are the current top cryptocurrencies with the biggest market capitalization.
Bitcoin is a peer-to-peer digital currency dominating the cryptocurrency market for all these years. Founded by a group of people under Satoshi Nakamoto's alias, this crypto was initially described in a 2008 whitepaper. Since its initial listing at $0.00, Bitcoin has had a highly volatile price history and reached its all-time high of $64,863.10 in April 2021.
Ranked as #1 in the CoinMarketCap ranking, the current Bitcoin crypto market cap is over $883 billion. While writing this article, its 24-hour low and high price is $45,835.96 and $47,239.26, respectively. Its last 24-hour trading volume is over $34 billion, with a current coin supply of 18,919,700 BTC coins and a max supply of 21 million coins.
Ethereum is the only cryptocurrency that has come remotely close to the Bitcoin crypto market cap. With a current price of just over $3840 and a supply of 119,020,364 ETH coins, the current crypto market cap of Ethereum is over $457 billion. ETH coin's current 24-hour low and high price is $3,698.05 and $3,855.19, respectively, and its all-time high is $4,865.57.
Founded by Vitalik Buterin and seven other co-founders, Ethereum was first described in 2013 and sold with an Initial coin Offering (IOC) of $0.311 in 2014. The team raised over $18 million in Bitcoin in the ICO fundraising.
Binance is the world's largest cryptocurrency exchange platform with the highest daily trading volume. Binance has launched its own crypto coin named Binance Coin to facilitate this platform. With a current price of around $517 and a live market supply above 166 million coins, Binance Coin's live market cap is $86 billion.
The current 24-hour low and the high price of Binance Coin are $503.22 and $532.10, respectively. Its 24-hour trading volume is $2 billion. Binance Coin reached its all-time high of $686.31 on 10 May 2021.
The cumulative crypto market cap has shown tremendous growth year-over-year, indicating a positive and high return on cryptocurrency investments if done right. Investors' growing interest is likely to continue the trend in 2022 and the years to come.
If you haven't already expanded your portfolio, it is the right time to do so. Consider the crypto market cap of the cryptocurrency you want to invest in. But don't rely solely on the cap price. Conduct ample market and background research on the coin before making any decision.
Once you have decided which coin you want to invest in, you can select one of the best crypto exchanges and purchase the crypto. Most exchanges have multiple currencies and payment method options to ensure that buying a coin and investing in the cryptocurrency market is easier for first-time users and amateurs alike.