Market capitalization plays an important role in your crypto investments. It is the deciding factor that shapes your portfolio. It can take your investment towards higher profit or deep loss.
Market capitalization is the metric that tracks the popularity and performance of crypto in the market. It measures the market value of a cryptocurrency and its dominance.
Crypto experts often recommend considering the market cap before buying or investing in crypto. However, there are other factors that you should look at as well. These factors include the consensus mechanism, features of the crypto and its market expert predictions.
If you are into crypto and stock trading it is hard to miss the word market cap. But the market cap in the stock market is different from that of crypto.
In stocks market cap refers to the total value of the company’s share of stocks. This helps the investors create a balanced and profitable investment portfolio. However, this is not the case with crypto.
In the crypto market, the market cap of crypto is the market value of the total coins in circulation at present.
Still, confused?
Wondering how you can analyze market cap to earn maximum profit from your crypto investment?
Here at Cryptohodly, we explain complex crypto concepts in simple language.
WHAT IS THE MARKET CAP?
Market cap is the metric to learn the monetary value of crypto in the market. It is the total dollar value of all the coins in circulation.
Market cap is used by crypto investors to analyze the growth of a coin and how it is doing in the market. It indicates the growth potential of a cryptocurrency and whether it is safe to invest or not.
HOW IS THE MARKET CAP CALCULATED?
Market cap is calculated by multiplying the total coins in circulation by the price of a single coin.
For example, if the value of a crypto coin is $100 (approx Rs.7000) and there are 1000 coins in circulation.
Then the market cap of this crypto will be:
Price of a single x total coins in circulation = market cap
$100 x 1000 = $100000
So the market cap of the crypto will be $100000.
Why market cap is important for investors?
A cryptocurrency’s value can be measured in a variety of ways, including price. Market capitalization is used by investors to present a more complete story and compare the worth of cryptocurrencies.
Market capitalization can be thought of as a rough indicator of how stable an item is likely to be.
A cryptocurrency with a bigger market cap than one with a much smaller market cap is likely to be a more stable investment. Digital currencies with smaller market capitalization, on the other hand, are more sensitive to market whims and can see massive gains or catastrophic losses as a result.
Let’s look at the market capitalization of two hypothetical cryptocurrencies to see how this works.
- The market cap of Cryptocurrency A is $400,000. It has 400,000 coins in circulation and each coin is worth $1.
- The market valuation of Cryptocurrency B is $200,000 if it has 100,000 coins in circulation and each coin is worth $2.
- Even though Cryptocurrency B’s coin price is higher than Cryptocurrency A’s, Cryptocurrency A’s aggregate value is double that of Cryptocurrency B.
It’s also worth noting that, because of their volatility, the market capitalization of several cryptocurrencies can swing substantially.
Types of market cap
The market cap provides you with important data. You can use this valuable data to compare two cryptocurrencies. It helps you to make informed decisions and make better investment strategies.
Large market cap crypto
Large market cap coins are considered safe to invest in. Investors consider these as low-risk investments. They also have high liquidity value as the price won’t drastically fall even if a large number of people cash out.
Large market cap crypto includes Bitcoin and Ethereum that have a market cap of greater than $10 billion.
MID-MARKET CAP CRYPTO
Mid-market cap crypto is those which lies in the range of $1 billion to $10 billion. These cryptocurrencies have high growth potential but also pose risks.
SMALL MARKET CAP
Small market cap coins are suspected of higher risks and swings. Cryptocurrencies that have a market cap of less than $1 billion come in this category.
Conclusion
Market cap is a crucial metric to consider when investing in crypto. However, the market trend, cryptocurrency stability as well as other economic factors should also be taken into regard.
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