Prices alone in the cryptocurrency market can be a deceptive indicator of a project’s true potential and value. Cryptocurrency prices can fluctuate dramatically due to factors such as changes in circulating supply, public enthusiasm, and so on. This is why investors rely on market capitalization to evaluate and rank assets and determine their growth potential. Larger market capitalizations generally indicate more investors, relative stability, and influence in the cryptocurrency space.
This article will explain what cryptocurrency market cap is and how to use it to compare the total value of one cryptocurrency to another in order to make better investment decisions.
Let’s get started!
What Is the Market Cap of Cryptocurrency?
The cryptocurrency market cap calculates the market value of a cryptocurrency by multiplying the current market price of a token or coin by its circulating supply. Market capitalization can be relied on by investors as a reliable and critical piece of data that can significantly increase their chances of success.
Market capitalization provides information about a specific cryptocurrency, such as its market position and dominance in comparison to other cryptocurrencies. As a result, it is regarded as a more precise metric than cryptocurrency price and is used when ranking cryptocurrencies.
High market capitalization cryptocurrencies are more reliable and give you more confidence, whereas low market capitalization coins are viewed as speculative and risky, but potentially lucrative, projects.
Pro tip: It’s critical to distinguish between FDV and circulating supply as a metric. FDV, or a fully diluted market cap, is calculated using the total number of coins, rather than just those in circulation.
Another alternative method is to calculate market capitalization by multiplying an asset’s current price by the maximum number of coins that could ever exist. However, not only does a higher circulating supply affect cryptocurrency prices, and similarly the crypto tax in India but some coins have no upper limit.
Factors Influencing Market Capitalization:
Supply and price are two factors that influence market capitalization.
The supply of a given cryptocurrency influences the cryptocurrency market cap. When demand exceeds supply, the price rises, potentially affecting the company’s overall market cap. Bitcoin, for example, has a fixed supply of 21 million bitcoins – its scarcity drives its value up. Others, such as Ethereum, do not have a fixed total supply, but some ETH is burned or sent to an unrecoverable address on the blockchain to keep the circulating supply from becoming too large. As a result, the amount of Ethereum in circulation is currently decreasing. Some other cryptocurrencies created by businesses have a timetable for unlocking. To create scarcity and maintain value, only a portion of their total supply is released at the time of their initial coin offering, with the remainder unlocked over a set period of time with the help of a Crypto Portfolio Tracker.
Even if a cryptocurrency has a small number of coins in circulation, its market cap will increase significantly if the price is high. The high price of a cryptocurrency, even with a low circulating supply, results in a large market cap. In contrast, if a cryptocurrency has a large circulating supply but a low price, it may not have a large market cap.
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