● Beginner Crypto Basics

Crypto Market Cap: What it is and Why it Matters

5 minutes 10 months ago

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.

What is Market Cap?

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.

Why is Market Cap important?

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.

How does Market Cap affect the value of a cryptocurrency?

There are three categories of market cap:

  • Large-cap cryptocurrencies - Large-cap currencies have a market cap of over $10 billion. They are sometimes regarded as potential investments due to their track records in terms of growth, and they tend to have higher liquidity, which means even when larger volumes of individuals cash out, the price is not as prone to large fluctuations.
  • Mid-cap cryptocurrencies - The market cap ranges between $1 billion and $10 billion, they have less liquidity then higher market cap thus are more susceptible to fluctuations, at the same time they also have more room for growth.
  • Small-cap cryptocurrencies - Their coin market cap is less than $1 billion, as such they are more vulnerable to fluctuations based on market trends.

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.

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