What is the Value and Importance of Crypto Market Capitalization?
Market cap is a measurement used to understand the current market value of an asset. In the context of cryptocurrencies, cryptocurrency market cap refers to the current value of the cryptocurrency network. You can calculate the market capitalization of a single cryptocurrency and the industry as a whole.
In both cases, market cap, a popular acronym, is used to denote metrics. Many experts say that the capitalization of the crypto market makes it easier for them to understand the development and performance of a crypto asset from a broader perspective.
Market cap is not a concept unique to the cryptocurrency industry. It is also used in traditional stock exchanges. However, many differences can be seen between these two calculations.
Total crypto market capitalization is often used as the basic reference for comparison with other sectors in the broader economy.
For example, many analysts often compare the total crypto market cap to the market capitalization of valuable commodity coins, bonds, or stocks.
How to Calculate the Market Cap of a Cryptocurrency?
The market capitalization of individual cryptocurrencies is the total value of all coins or tokens issued. Calculating this number, which is obtained by multiplying the price of a single currency by its total supply in circulation, is relatively simple. To better understand this concept, let’s calculate the market capitalization of Bitcoin (BTC).
Market cap = price of the individual coin x total circulating supply
As of May 2022, the price of a single Bitcoin (BTC) is $33,657. The total circulating supply is 19,054,281 BTC. To find the current market value of Bitcoin, we need to multiply the price and the circulating supply.
Therefore, Bitcoin’s market capitalization = $33657 x $19,054,281 = $641,309,935,617. Therefore, Bitcoin’s total market capitalization is $641.3 billion. We can apply the same formula to other crypto assets.
In second place is Ethereum (ETH), which has a market cap of $238,935,829,316. The Ethereum project is one of the most critical and valuable projects in the crypto sector.
Capitalization Issues in the Crypto Market
First, some analysts believe that information about crypto projects is not transparent. The disparity in the number of cryptocurrencies in circulation or the current price can affect the final figure, which we consider to be the market capitalization. Therefore, a reliable and transparent source of data becomes part of keeping track of crypto market capitalization figures.
Second, experts claim that people with biased interests can manipulate the market value of cryptocurrency projects without much effort. The history of the crypto industry has already seen such manipulation attempts designed to attract more investors by promoting market cap alone.
The possibility of such manipulation is one reason why some experts have damaged confidence in the capitalization of the crypto market.
The volatility inherent in the cryptocurrency industry has also made people more cautious about metrics.
Uses of Cryptocurrency Capital
The crypto market capitalization metric can help you make efficient market decisions. More importantly, these market cap figures can give us a rough estimate of how quickly or intensively a crypto asset is growing and the growth potential of the total crypto market in the coming years.
Given that the metric gives equal importance to overall circulation and the value of an individual coin, the figures represent the adoption rates, demand, and popularity of the project in question. As long as sources report accurate figures, the total crypto market capitalization will reflect the current state of the industry.
Still, no one knows the best way to predict the valuation of cryptocurrency projects, these comparisons will be useful.