In the world of cryptocurrency, there are a lot of metrics you must know for you to know when is the right time to invest and when not to. If you want to learn the ins and outs of the crypto world, you should also learn how to determine market cap to give you a better idea of when is the right time to dig deeper.
Like with other metrics in the world of crypto, the market cap is one of the few metrics you must master to further develop your skills in investing and trading cryptocurrencies. If you want to learn more about the cryptocurrency market cap, stay with us for quite a while.
What Is Market Cap?
Market cap or cryptocurrency market capitalization is a useful metric for knowing the true value of different cryptocurrencies. If you go into sites wherein they specialized in showing crypto market capitalizations, you will see different kinds of cryptocurrencies being ranked depending on their market cap.
Some of the most popular cryptocurrencies are Bitcoin, XRP, and Ethereum because of how well they perform and their market cap. In this article, if you want to learn how a market cap works and how to determine market cap, you can use this information to make your investing guide.
How to Calculate Cryptocurrency Market Cap
If you want to know how to determine market cap, you must first learn how to calculate market cap to understand better how this certain company will favor you. Market cap is calculated with this formula:
Price of Each Coin x Total Circulating Supply = Market Cap
Simply put, it is the product of the coin’s price and the number of total circulating supply. Let’s take an example:
If coin A has a total circulation of 500,000 coins and each coin has a value of $2, then the market capitalization is calculated by 500,000*2 = $1,000,000.
But if coin B has a value of $4 but the total coins circulating is around 50,000, then 50,000*4 = $200,000
So, even if coin B has a bigger value than coin A, this doesn’t necessarily mean coin B has a greater value than coin A. And that is because coin A has an incredible amount of circulating coins compared to coin B. That’s why market capitalization is a good indicator of how much a company is worth than its individual coins’ price.
Small-Cap vs. Medium Cap vs. Large Cap
As mentioned earlier, if you went to a site wherein it ranks different kinds of cryptocurrencies depending on their market cap, what is the main point? What can you learn from this metric?
The market cap provides a better idea of how much risk you will deal with when you choose a cryptocurrency. And they are easily categorized into three groups, small-cap, medium-cap, and large-cap.
Small-cap cryptocurrency: as the name suggests, these are the ones with the smallest market cup and pose a higher risk because of the potential to fail. One of the determiners is having a market cap below $1 billion if a company is considered low-cap.
Medium cap cryptocurrency: med-cap is a cryptocurrency with a smaller market cap than a large-cap. Med-cap cryptocurrency has a market cap that ranges from 1 billion dollars to 10 billion dollars.
Large-cap cryptocurrency: if you want to invest your money in a reliable cryptocurrency, then large-cap companies are the best ones to go about it. Companies such as Ripple (XRP), Ethereum (ETH), and Bitcoin (BTC) are considered large-cap cryptos. Their market cap is north of 10 billion dollars.
Market Cap Potential: Risk or Reward?
As written above, a market cap gives you a better idea of which cryptocurrencies are performing well beyond expectations and which are not. It also gives you an idea of the growth potential of each company.
Because of how small their market cap is, these cryptocurrencies are vulnerable to the market’s impulses. This means your investments could fall on a whim in an instant. However, there will always be some caveat to it. Why? Because small market caps have the potential to explode in the market, double, triple, quadruple, or quintuple up your investment in an instant. Investing in a small market cap crypto will give you the highest risk and reward compared to investing in mid and large-cap cryptos.
Mid-cap cryptos have in between to market caps. They have more potential than large caps because large caps are already established. What mid-cap gives you is the potential to a little bit of risk compared to the small market cap but on the safer side of things. Out of the three market caps, the mid-cap poses the best potential because they are still not being fully utilized to their potential. Simply put, they are on the cusp of greatness, waiting for that door to be knocked.
If you are investing in large-cap cryptos, it is safe to say that you will see growth with your investment but often so negligible. While large-cap may offer a safer side of investing, it is expected that your investments will have minimal growth over time. Also, always keep in mind that large market caps can always have a large scope of growth because of cryptocurrencies’ volatility.
Learning how to determine market cap gives you a better idea of how cryptocurrencies do well in your favor. When it comes to investing in cryptocurrencies, there will always be risks and rewards bound to happen. If you know what you are dealing with, you will be safe with your investments, but if you are a risk-taker, then hope for the best that it will be in your favor.
Lastly, If you study the market cap comprehensively and how it works, you will know how each one performs, and it will give you a better idea of which company to invest in. Learn more about market cap here!