The total market capitalization of a firm is the total monetary worth of all its shares or, in the case of Bitcoin or another cryptocurrency, all mined coins. The overall market capitalization of cryptocurrencies is derived by multiplying the total number of coins produced by the price of a single coin at a particular moment.
It is an approximate measure of how stable an asset is expected to be. (It’s worth noting that even Bitcoin, which has the biggest overall market capitalization of all cryptocurrencies, is subject to volatility.) However, much as a bigger ship can safely sail turbulent seas, a cryptocurrency with a significantly higher total market capitalization is more likely to be a more stable investment than one with a significantly lower total market capitalization. Similarly, digital currencies with smaller overall market capitalizations are more vulnerable to market movements and might suffer significant gains or losses.
Please keep in mind that it may be used interchangeably with “outstanding supply” or “completely diluted supply.” With Bitcoin, the two figures are either the 18.5 million that have been mined (“outstanding supply”) or the 21 million that will be mined ultimately (“fully diluted supply”). Some observers use current outstanding supply to calculate overall market value, while others use fully diluted supply.
Why is total market capitalization important?
A cryptocurrency’s worth may be measured in a variety of ways, including price. It is used by investors to present a more comprehensive narrative and compare the worth of cryptocurrencies. As a primary metric, it might suggest a cryptocurrency’s development potential and if it is safe to acquire it in comparison to others.
To illustrate this, consider the total market capitalization of two fictitious cryptocurrencies.
- If cryptocurrency A has 400,000 coins in circulation and each coin is worth one dollar, then the total market capitalization is 400,000 dollars.
- If cryptocurrency B has 100,000 coins in circulation with a value of $2 per coin, the total market capitalization is 200,000 USD.
- While cryptocurrency B’s individual price is greater than cryptocurrency A’s, cryptocurrency A’s aggregate worth is double that of cryptocurrency B.
However, it is crucial to remember that the entire market value of several cryptocurrencies might change significantly owing to their volatility.
What can you do with the total market capitalization?
Overall market capitalization compares the total worth of a cryptocurrency to others, allowing you to make better educated investment choices. Cryptocurrencies are divided into three groups based on their overall market capitalization:
- The market capitalization of large cap cryptocurrencies, such as Bitcoin and Ethereum, exceeds USD 10 billion. Investors perceive them to be lower risk investments since they have a track record of growth and frequently have better liquidity, which means they can sustain a higher number of redemptions without appreciably affecting the price.
- Mid-cap cryptocurrencies have market capitalizations ranging from USD 1 billion to USD 10 billion and are often seen to offer more unmet upside potential as well as higher risk.
- Small cap cryptocurrencies have a total market capitalization of less than USD 1 billion and are more prone to suffer significant market sentiment fluctuations.
Total market capitalization is a helpful indicator for comparing the total worth of cryptocurrencies, but market trends, a cryptocurrency’s stability, and its financial status must all be taken into account when considering the dangers of any investment.