Calculating a particular digital currency’s market capitalization – or market cap – requires simple arithmetic knowledge. Although most crypto traders like to compare the market capitalization of different virtual currencies, a market cap could be utilized to focus on the bigger picture.
The cryptocurrency market’s aggregate value is much larger than the market cap of individual projects like Bitcoin or Ethereum. Even though these two projects exert significant dominance in the crypto market, the value of several crypto projects combined surpasses them both. The most popular crypto market price trackers display the price of specific assets in the crypto industry. Thus, if an investor wants to buy Shiba, they can check these price trackers to get an idea of its value.
Similarly, popular crypto market price trackers display the digital assets’ aggregate value in the virtual currency space. Hence, it has become easier for crypto enthusiasts to monitor this metric.
Understanding cryptocurrency market capitalization
The market capitalization of a specific financial asset is the value of all units of that financial instrument. It is calculated by multiplying the circulating supply of the asset by the price of one unit. The term ‘market cap’ is used in the wider financial space, including stocks and precious metals.
To cite a more relatable example for those new to the finance space, take a specific edition of the Nike Airmax sneakers. Let’s say only 10 of these Airmax sneakers were ever produced, with a price of $5,000 for each unit. In essence, the market capitalization of the Nike Airmax sneakers would be the $5,000 price for each unit multiplied by the ten units.
Thus, the market capitalization of Nike Airmax sneakers would be $50,000. In the same vein, if there’s a coin called examplecoin with a total of 10,000 coins in circulation with a price of $100 for each unit, the total market cap would be 10,000 multiplied by $100, which equals $1,000,000.
A coin could have a lesser price than examplecoin and still have a bigger market capitalization. For instance, a coin called gogocoin has a total of 100,000 coins in circulation with a $50 price for each unit. The total market capitalization would be 100,000 coins multiplied by $50, which equals $5,000,000.
The total market capitalization of cryptocurrencies
The total market capitalization reflects the entire value of bitcoin, altcoins, stablecoins, and other classes of crypto assets. The crypto market cap is considered a highly vital metric since it displays the size of the digital currency market.
The crypto market is one of the world’s most volatile markets, and its total market cap changes by the second. This is prominent because the crypto market can be traded at all times, every day of the week.
The total market cap of cryptocurrencies from 2010-2015 never exceeded $20 billion. There was a big jump in early 2018, a short while after Bitcoin’s price hit the $20,000 market price to reach $770 billion. In 2021, the total cryptocurrency market cap hit $3 trillion.
The importance of the crypto market capitalization
The total crypto market cap is used to compare the digital currency industry with other sectors of an economy. For instance, financial analysts try to compare the aggregate value of the crypto market with that of the stock market or precious metals. Stocks and precious metals like gold are the two assets that correlate the most with bitcoin’s price.
The reason financial analysts make these comparisons is so that they can forecast the state of the crypto market in the next few years and decades. Nevertheless, even the best finance experts get stuck at some point when they try to value different crypto projects. Even if there’s a cash price on a crypto project, the valuations might not be accurate.
Making comparisons across various financial markets is not usually a productive one. Depending on an investor’s risk tolerance, they may be attracted to invest in some industries.
Because some investors trade stocks and precious metals doesn’t mean they’ll be attracted to cryptocurrency. Cryptocurrency is a largely new sector and should be treated as such.
Why the aggregate cryptocurrency market value might be inaccurate
You could be leveraging inaccurate data if you make investments based on what the aggregate crypto market cap displays. For one, to correctly evaluate crypto’s market cap, you have to multiply the exact circulating supply of each project by the price of each unit of the asset.
Nevertheless, it could be challenging to pinpoint the exact supply of a cryptocurrency. That’s because crypto could get lost with an owner’s private key and other reasons. If you make your calculations off inaccurate data, it would be incorrect.
Also, some crypto projects could have their prices manipulated by malicious traders. These are typically called pump-and-dump scams, where coins without value get their price raised even though the project doesn’t offer much utility.
The market capitalization of a particular asset is the entire value of its units in monetary terms. Market cap is simple to calculate and could be used to predict the future price of an asset. In crypto, the price of a specific virtual currency doesn’t always translate to a high market cap.
Crypto’s all-time high market cap was achieved in November 2021 at $3 trillion. Financial decisions shouldn’t be made based on the aggregate crypto market value since the figures could be inaccurate.