Cryptonomics: What is Crypto Market Cap

Crypto market capitalization describes the current market value of a given cryptocurrency or blockchain network. It is an important parameter that provides us with a fair idea of a market’s financial strength.

By
Utulu Hope
on
April 13, 2021
Category:
Cryptonomics

Introduction

Much effort is not required to calculate the market capitalization of a given crypto asset. Though many crypto followers prefer to compare the market cap of different individual projects, it is equally helpful to know its value on an industry-wide scale. Presently, Bitcoin and Ethereum are the biggest cryptocurrencies in terms of market capitalization. While this is true, all cryptocurrencies’ total market cap is more significant than their individual ones. Major crypto data aggregators disclose the total market capitalization. We need to know what this data means and what it tells us about the market’s state. 


Meaning Of Crypto Market Capitalisation


The term "market capitalization" is widely used for traditional securities but is also of significance in analyzing cryptocurrencies. Market capitalization is simply the measure of the value of an asset. When applied to cryptocurrencies, we can define it as a measure of a cryptocurrency network’s value. It can be calculated manually. To calculate the market cap of a given asset, multiply the circulating supply by the price of one unit of the asset.

Here is an illustration. For instance, XCOIN and YCOIN are two networks. XCOIN has a circulating supply of all its 2,000 coins. On the other hand, YCOIN has a circulating supply of 50,000 coins out of a maximum supply of 100,000 coins. If we assume that the market price of XCOIN is $100 and that of YCOIN is $5, which of the two networks has a greater market cap? 

The calculation for market capitalization is expressed as MC = CS x Price. 

With this, we can calculate the market cap of both networks. 

XCOIN Market Cap = 2000 x $100 = $200000

YCOIN Market Cap = 50000 x $5 = $250000

From these calculations, we observe that the YCOIN network’s value is bigger than that of XCOIN, even with a lower unit price. Therefore, a market cap is better used to estimate the value of a token as opposed to the price.


Diluted Crypto Market Capitalization

This is one way of estimating the future value of a particular network. It is a term that is widely used in the stock market. It is a representation of a company's valuation if every stock option is exercised and all securities are converted to stock.

Let us apply the term to the crypto market. For instance, the maximum possible supply of Bitcoin is 21 million, out of which about 18.505 million are in circulation. This corresponds to a market cap of approximately $195.2 billion if we assume $10550 per BTC. 

To calculate the diluted market cap, one has to consider the maximum supply of Bitcoin. This means that we will multiply the total supply of Bitcoin by its price. It also helps to determine if an asset is overvalued or undervalued. 

DCM (Diluted crypto market cap) = TS (Total Supply) x Price 


Understanding Total Crypto Market Capitalization

As the name implies, total crypto market capitalization is the combined total value of all crypto assets on the crypto market, such as Bitcoin, altcoins, stablecoins, tokens, etc. The information about the total market cap is very vital because it discloses the entire industry's size. 

There is no doubt that many crypto assets’ value tends to fluctuate due to the crypto market’s volatility. In fact, since the inception of cryptocurrencies, the entire market cap of the industry never breached the $20 billion mark in the first six and a half years. However, in 2018, the market capitalization skyrocketed to $770 billion and is now over 2 trillion.

Significance Of Total Market Capitalization

One primary importance of the total crypto market cap is that it is helpful to compare with other economic sectors. Many enthusiasts often compare the total market caps of cryptocurrencies and other sectors like the stock market and precious metals. They do this because it gives them a fair estimate of the future growth of the crypto market. Even as this estimate is helpful, it is not certain. Therefore, it is still unclear how to determine the potential value of cryptocurrencies or blockchain projects with absolute accuracy. 

Closing Thoughts 

Crypto market capitalization is an essential metric. It tells the valuation of the whole crypto industry. It can provide a fair comparison between the present valuation of an asset and its value later in the future. Although market cap is a quick means of making projections about any financial industry, other market parameters need to be considered in order to arrive at a holistic assessment of that industry.

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Utulu Hope

UC Hope is a passionate fan of crypto who could weave the latest event into sparks of inspiration and information. He leaves no stone unturned to get to the core of a story. Aside from writing, he spends his hours poring over algorithms and protocols, preparing for a future career as a computer programmer.

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