Market caps (cap is short for capitalization) are crucial in determining a company’s dollar market value that is traded on the stock market. Besides determining company size, this figure can clue in investors as to how stable a company is or how risky it will be to invest their money on them.
Just like any other industry, the cryptocurrency world also has market caps. The market capitalization of a cryptocurrency is its market value translated in a government-issued currency, usually the US dollar. It’s computed by multiplying the cryptocurrency’s current market price (CMP) and circulating supply.
For instance, if a single Coin A has a price of $150 and a total circulating supply of 500,000, then the market cap would be $75,000,000. This can indicate how much Fiat money is invested in Coin A. Market caps can also serve as a guideline for you on how to trade Noah Coin.
The infographic below will further explain the importance of learning market caps and detail the figures of the biggest names in the cryptocurrency industry.
Why Understanding Cryptocurrency Market Caps is Important
While the oldest cryptocurrency was created over ago, the industry is not yet completely stable, and new virtual currencies are joining the game. Here are some of the practical benefits of studying market caps.
Cryptocurrency market caps help identify circulation and supply.
Each cryptocurrency has a circulating supply, which is the number of available coins the public can get their hands on. Some cryptocurrencies have a finite total supply, while others have none. A great example is Bitcoin, with a total supply of 21 million tokens to ever be mined. On the other hand, the mining of Ethereum has no limit.
Factoring in the circulating supply in the picture helps a trader know more about price inflations of the cryptocurrency in question. Following the above example, if Bitcoin and Ethereum had the same market cap, this would still show a difference in its current market price.
Market caps show how much risk is involved with a particular cryptocurrency.
Market caps are considered the best metric available when it comes to ranking coins and comparing their value against each other. It also determines the size of the cryptocurrency better than just the price.
There are three types of market caps: large-cap, mid-cap, and small-cap. The larger the market cap, the less risky it is to invest in. However, it also means that your money may not see much growth. Inversely, the smaller the market cap is, the more volatile the currency is. There are equally high chances for it to explode or fail.
Market caps show the real value of a cryptocurrency.
Bitcoin and Ethereum have a large discrepancy in price that it’s quite odd to think that they rank first and second as the strongest virtual currencies to date. However, price doesn’t matter when it comes to this.
Market caps are better for comparing the value of cryptocurrencies against each other. As mentioned in the definition of crypto market caps above, it shows how much government-issued money is invested in a virtual token. So, it demonstrates how much people trust a particular currency.
The Highest Crypto Market Caps Right Now
Bitcoin is the strongest and most popular cryptocurrency in the market today, and forecasts predict that it will sustain its position. For one, Bitcoin ATMs will become widely available (than before) in the US. This could push non-cryptocurrency users to try or start using Bitcoin for the first time. Bitcoin-based transactions for everyday items such as smartphones and gadgets will also emerge.
While Ethereum holds the second spot in the list of strongest cryptocurrencies worldwide, trends show that it is quite unstable and bearish. If these market trends continue to stay in the lows, ETH would have a lower CMP (and therefore lower market cap). More hopeful analysis shows that it will regain its spot as the second strongest cryptocurrency out there. Joseph Lubin, the co-creator of ETH, recently tweeted that market caps don’t reflect activity. The adoption rate isn’t going down, which gives investors some form of placation.
Plenty of Ripple reports claim that the virtual currency could reach a CMP of $10 this 2019. The altcoin is merely waiting for tech giants to launch platforms and products that will boost its circulation this year, such as popular digital wallet Coinbase adding Ripple to its list of supported virtual tokens. The future spells bright for Ripple in terms of peer-to-peer and purchasing transactions.
Financial literacy in cryptocurrency includes being familiar with market caps of the different virtual tokens. If you’re an investor or trader, it’s critical for you to observe the market cap trends for more extended periods to get a feel of the overall stability of the cryptocurrency you want to buy into.
In terms of investment, traders should look at cryptocurrencies from a holistic point of view, and not just base decisions on their price or market cap alone. Generally speaking, while Bitcoin holds the top spot for cryptocurrencies today, there’s no guarantee that things won’t change in the future. The high prices of the coin may discourage people from investing in favor of other currencies instead.
It’s been more than a decade since blockchain technology was developed, which gave birth to cryptocurrencies as you know it. It’s not surprising for a wild card or newer coins to join the top ten and demonstrate stronger characteristics than some of the more secure tokens. One thing’s for sure: Trading cryptocurrencies will involve a certain amount of risk—just like any other business venture out there. It’s up to you to make smart choices based on current market prices, market caps, and trends.