Market Capitalization

How large is the crypto market actually?

Market capitalization helps you assess the value and stability of a cryptocurrency. Understand how market cap works and how you can use it to better estimate risks and growth potential.

What is Market Capitalization and Why Is It Important?

Market capitalization, or “market cap,” is a widely used term in the world of crypto as well as traditional markets. It’s a simple but powerful metric to evaluate the size and value of a particular asset. For those just starting to invest in crypto, understanding market capitalization is an important part of making informed decisions. But what exactly does market capitalization mean, and what does it say about a cryptocurrency?

How Is Market Capitalization Calculated?

Market capitalization is calculated by multiplying the total number of coins in circulation by the current price per coin. So if there are 10 million coins of a particular cryptocurrency in circulation and the price per coin is €100, then the total market capitalization is €1 billion. Put simply, market cap gives you an idea of the total value of a cryptocurrency in the market.

Different Categories of Market Capitalization

There are three common categories that cryptocurrencies fall into based on their market capitalization:

Large-cap cryptocurrencies usually more than €10 billion): These are the larger players in the market, such as Bitcoin and Ethereum. They are often seen as more stable and less risky, but that doesn’t mean their price can’t fluctuate.
Mid-cap cryptocurrencies (1 billion to €10 billion): These coins sit between large and small market caps and can offer more growth potential but often come with higher risk.
Small-cap cryptocurrencies (less than €1 billion): These are smaller, emerging coins with lower volume and less recognition. They can deliver significant gains but are also seen as very risky due to their volatility.

What Does Market Capitalization Say About a Cryptocurrency?

Market capitalization is an important indicator of the popularity and risk of a crypto asset. A high market cap indicates that many people are investing in the coin and that it may be relatively stable. On the other hand, a low market cap may mean that the coin is more speculative and sensitive to large price swings. In general, market capitalization gives an idea of the risk level of a coin: the larger the market cap, the less volatile the coin is likely to be, but the smaller the growth potential might be.

Daily Changes in Market Capitalization

Just like trading volume, it’s also interesting to look at daily percentage changes in total market capitalization. A strong increase in total market cap can indicate that there is a lot of interest in the market and that new capital is flowing in, which is usually interpreted as bullish. A decrease, on the other hand, can indicate a sell-off and the removal of capital from the market, which is often seen as bearish.

Conclusion

Market capitalization provides a valuable overview of the size and growth potential of a cryptocurrency. While it is an important indicator, it’s essential to combine market capitalization with other factors such as trading volume and volatility in order to make a well-informed decision.