If you are new to the crypto world, you might be confused with all the data presented on cryptocurrency websites, and one of them is –market cap or market capitalization. We will lessen the things confusing you by discussing all market cap in this article. We will define what market cap is and what it means for digital currencies. You will learn how to compute it and discover how does market cap increase in cryptocurrency. Read on!
Market Capitalization Defined
Market capitalization in business is the market value of all shares of the company at a given time. You can get a company’s market cap by multiplying all the company’s existing shares by each share’s current price.
total number of shares x price of each share = company’s market capitalization
From time to time, the market cap can change depending on two factors: (1) the number of shares in the company’s stock and (2) the price of each share. The price of each stock may increase as the company improves its performance. They may be developing the company’s technology, releasing new products, expanding service, and many more. Basically, if the company’s reputation or profit increases, the price of 1 share also increases. The same thing happens if the company also raised its available number of shares.
Computing Market Cap In Crypto
To understand how does market cap increase in cryptocurrency, let us first discuss how to compute for it. In crypto, the market cap is among the values that describe the market status of a digital currency (also, crypto coin, digital coin). The crypto market cap is the total market value of all the coins of a specific currency at one time. This means the value of all coins when you sell every single digital currency in circulation at a time. It is computed at:
Circulating supply of a cryptocurrency x market value of 1 coin = market cap of a crypto coin
For example, one Bitcoin(BTC) on Dec 1, 2020, is valued at US $18,803.00 with a circulating supply of 18,559,623.32 has a market cap of:
18,559,623.32 BTC x US $ 18,803.00 = 348,976,597,318
You can monitor the data of different cryptocurrencies. Some websites show the opening price, closing price, highest price during session, lowest price during session, trading volume, market cap, and supply count of all cryptocurrencies.
How Does Market Cap Increase In Cryptocurrency?
The market cap increases as both factors, the circulating supply, and crypto coin price, increase. So it’s either (1) additional coins in circulation will be created, or (2) the digital coin price rises. As people use cryptocurrency, miners get to authenticate transactions and earn, thereby creating additional crypto coins and increasing supply. In currency mining, there are mining softwares that lets miners mine different currencies but rewards on the currency of their choice. So, chances are, miners may not choose coins with low demand.
Demand is created as more people use a currency, its value increases due to its rising utility. If more people use a crypto coin, you can use that coin to buy more stuff, increasing its value. As its value or price increases, more people would want to buy into that coin or trade into it, increasing its circulating supply. Increased demand would also drive people to buy crypto, aggressively pushing bidding prices higher. This continued cycle increases the price, and the number of coins in circulation, both in effect increases the market cap further.
What Does It Say on Your Investments?
There are times that beginner crypto investors might mistakenly think that the market cap is equal to the total fiat currency invested in a coin. This is an error for several reasons. Generally, the coin market cap can tell you of a currency’s resistance to volatility or vulnerability. Crypto with small market caps can be easily stirred when big news hits the market, or large buyers (or whales) controls coin stocks.
If many coin holders suddenly conspire to sell, the price of a currency can easily get crushed. Or if a piece of news that could rock the trust of users to a cryptocurrency surfaced, for example, a problematic coin algorithm, many holders may decide to dispose of the coin. If there are many sellers, the price could crash because holders would try to sell lower to sell their assets fast, aiming to liquidate or exchange currencies just before the market plunges.
Another reason would be that the market cap only presents the crypto’s supply and price. But it doesn’t tell who holds the coins. If it was concentrated on some whales or developers trying to make it look like a healthy market cap, market cap alone can’t confirm the market’s genuine status. However, this kind of manipulation will be harder to do among coins with higher market caps, like Bitcoin (BTC) and Ethereum (ETH).
When you are a beginner in the crypto world, it’s good to know how does market cap increase in cryptocurrency. You can join groups and check reputable websites on how you can be a better trader in the business. Discover more tips on reading crypto market cap!
The market cap is indeed an easy way to tell a coin’s value. Now that you know how does market cap increase in cryptocurrency, you’ll know better to weigh the market cap with other metrics available, like trade volume and many more. A healthy market cap is a sign of strong crypto, but some entities can mislead this numerical presentation to control the currency’s direction. Always be smart in reading all the indicators and values presented to you by the market.