How To Calculate Coin Market Cap: Beginner’s Guide
For any investment, knowing the market cap can help you determine an investment's prospects. The market cap is the value given to a particular company if all the shares will be sold at that moment. Knowing this can help you decide and calculate the risks of any investment. These kinds of foresight can help you decide what kind of currency you would invest in or what kind of digital currency you will mine in the crypto market. This article wants to help you understand the relevance of a market cap and how to calculate coin market cap. This knowledge can help you understand the statistics given to you by coin market cap websites. This article is by no means a guide in making your investment decisions. That one needs other topics and factors to discuss.
Relevance Of Market Cap in Cryptocurrencies
The market cap is a quick summation of a company's current values. It is computed as the number of shares multiplied by the price of one share. For example, a company has 420 total shares for $5000 for each share, meaning that its total value is $2,100,000. Companies with small- or mid-cap stocks will pose a higher risk in an investment portfolio, while those with higher caps are more stable. However, high-risk investments may generate higher profits later in time than stable stocks.
The same is true for cryptocurrencies. Determining the market cap can help you understand the current value of your digital currency. Again we have to specify “current.” The coin market cap is not the sole factor that determines if the cryptocurrency is bound to profit. And the movement from other factors like trade volume can significantly influence the chances of profit.
The Coin Market Cap
The coin market cap is the capital invested in a digital currency and the estimate of that cryptocurrency's total value. To answer your question on how to calculate coin market cap, multiply the current circulating supply with its current value.
For example, as of writing, the Bitcoin has a current circulating supply of 18,577,768 BTC and a value of $22,646.88. You can get the value of the circulating supply and currency price from popular websites about cryptocurrency rates. The computation will look like this:
18,577,768 x $22, 646.88= $420,728,482,563.84
In this equation, $420,728,482,563.84 is the market cap of Bitcoins.
If you want to convert the value in your local currency, you can use the same equation (sample for Bitcoin):
18,577,768 (current circulating supply) x (bitcoin price in your currency) = the market cap of Bitcoins in your local currency
You can easily find crypto calculators or crypto calculator apps on the net. But you have to carefully get the correct value of circulating supply and digital currency price. For popular coins or token, like Bitcoin, Ethereum, etc., their coin market cap is already charted in websites like the CoinMarketCap. But for new coins and tokens, you may need to do the computation. The formula is the same as our sample above:
Market Cap (US$) = Current Circulating Supply (Cryptocurrency) * Price (USD per Cryptocurrency)
Why Do I Need To Know How to Calculate Coin Market Cap?
The market cap is the only 100% way to quantify the value of a digital currency. Having a gut feel about this may be real, but knowing how to quantify a coin's current value can lessen the probability of risks you may encounter if you plan to get involved in digital currency. Suppose you calculate the market cap of a current currency and compare it with the market cap using the price you hope it would be, and the difference is really distant. In that case, it means that what you're hoping for is not impossible but most likely improbable. For example, Crypto coin A has a circulating supply of 150,000 coins and has a price of $0.000075. What are the chances that its value could shoot up at $0.50 per coin?
Its market cap would be computed like this:
15,000,000 coins x $0.000075 per Crypto coin A= $1125 market cap
What you’re hoping for:
15,000,000 coins x $0.50 per Crypto coin A= $7,500,000 market cap
The difference between the two market caps is very high, meaning its probability is only small, just like the chances that someone will give you a million dollars is not impossible but highly improbable. And if you remember our first discussion about market caps, it also means that investing in this crypto coin has many risks. But if you did invest, and somehow something really extraordinary happened, and this investment profited after a long time, the returns will be huge. As you can see, it’s really important to know how to calculate the coin market cap to know the ins and outs of the trade. Learn more about coin market cap here!
Even now that you know how to calculate coin market cap, you should still remember that any investment is always a risk. No one can surely predict what exactly would happen to the market. And again, the coin market cap is not the sole factor to consider when making investment decisions. Still, this knowledge allows you to make a calculated risk, which means that you won't be caught dreaming that your crypto coin can shoot up to $1 value from its current low price. Now, you understand the concept of market cap. You can now advance to other concepts to deepen your understanding of crypto trade.
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