If you’ve just entered the cryptocurrency world, the term coin market cap is something you will hear often. In this article we will go back to the basics to find out what it is, why it matters, and how it can affect your decision to invest.
The term ‘market cap’ or market capitalisation refers to the total amount of cryptocurrency coins that have been mined and are in circulation. This number is calculated by multiplying the combined number of mined coins by the price of the coin.
Coins with bigger market caps will tend to be valued higher due to the fact they are perceived to be stable compared to those that have smaller market caps. Coins with smaller market caps also tend to experience more dramatic fluctuations in price.
There are two other relevant terms that are used with market cap - ‘circulating supply’ and ‘fully diluted supply’. The circulating supply relates to the current number of already mined coins that are in the hands of the public. The total supply relates to the entirety of the coins in existence, and the fully dilated supply refers to the maximum number of coins that will ever be mined.
While price is one of the most popular ways to measure the value of a cryptocurrency, the market cap is another way in which investors compare and value coins. It can indicate various things, such as potential growth. It is always a good idea to look at a coin in a holistic sense and to do your own research, rather than judge it by the price.
There are three categories of market cap:
Overall, there are many factors that you will want to consider - your own finances, market trends, and the cryptocurrency’s stability are all possible considerations.