What Does Market Capitalisation Mean?
In terms of cryptocurrencies, market capitalisation refers to the total monetary market value of every crypto coin or token that has been minted to date for any particular cryptocurrency. The market capitalisation of any cryptocurrency can be determined by multiplying the number of minted crypto (or the number of coins available in the circulating supply) coins of a particular cryptocurrency with its current price in the market. Thus, the formula for calculating market capitalisation for any cryptocurrency is as follows:
Market Capitalisation = Price of Cryptocurrency x Number of Coins Minted/Coins in Circulating Supply
The market capitalisation of any cryptocurrency is a good way to get a rough estimate of the popularity and demand for any particular cryptocurrency. At the time of writing this article, the price of a single Bitcoin is roughly $20,130, so Bitcoin has an approximate market capitalisation of $385,890,371,100, based on the current circulating supply. This makes Bitcoin the largest cryptocurrency in the world in terms of market capitalisation. The second largest cryptocurrency by market capitalisation at the time of writing is Ethereum, with the price of a single Ether at $1351 and the total market capitalisation at $165,756,969,300.
Why Is Understanding Market Cap Of Crypto Important?
As per crypto experts, the market capitalisation of any cryptocurrency is a good indicator of how stable that cryptocurrency is. Cryptocurrencies with the biggest market capitalisations are more likely to have lesser price fluctuations and remain somewhat stable when the overall markets experience a downturn. This is routinely seen in the crypto world, as whenever the market dumps, the prices of low-market-cap cryptocurrencies crash significantly, whereas the prices of top cryptocurrencies like Bitcoin and Ethereum only fall a little in comparison. Essentially, cryptocurrencies with small market capitalisations are not immune to the shocks of the market and are thus not very reliable as investments. At the same time, the possibility of cryptocurrencies with small market caps gaining a lot of value in the short term is also a possibility. It is important to note, however, that whole of the crypto market always remains in a somewhat volatile state, with the prices of even top cryptocurrencies fluctuating over time.
Categorising Cryptocurrencies Based On Market Cap
Cryptocurrency experts have divided cryptocurrencies into three different types, based on their market capitalisations, as you can see below:
Large Cap Cryptocurrencies: Large cap cryptocurrencies refer to those crypto coins and tokens that have a market capitalisation of more than $10 billion. Crypto investors consider these cryptocurrencies to be comparatively lower-risk compared to smaller cryptos. Moreover, cryptocurrencies that have reached this market capitalisation have shown immense growth and resilience in the crypto market over the years. Most importantly, cryptocurrencies with large market caps offer liquidity, meaning many people can sell off their coins without affecting the prices too much.
Mid Cap Cryptocurrencies: Mid-cap cryptocurrencies refer to those crypto coins and tokens that have a market capitalisation between $1 billion and $10 billion. Crypto experts consider these as coins that have an immense potential to grow, but their price movements can be wildly fluctuating due to their lower market capitalisations.
Small Cap Cryptocurrencies: Small cap cryptocurrencies refer to those crypto coins and tokens that have a market capitalisation of less than $1 billion. These cryptocurrencies are generally highly volatile and not considered to be stable or secure investments. The prices of these cryptocurrencies are also highly susceptible to market movement and they suffer heavily from liquidity-related issues.
This article does not intend to pass on any financial advice and BQ Prime does not endorse any of the cryptocurrencies mentioned above. Please invest at your own discretion.