Coin Market Capitalization

Coin-Market-Capitalization

Coin Market Capitalization can be defined as an easy way of knowing how big any particular cryptocurrency is. Market capitalization is one of the most important factors when it comes to investing in the share market. The same cannot be said about the cryptocurrency market. Stock market capitalization- the cumulative value of the total shares of the company- is one of the most important factors determining a well rounded investment portfolio. Let’s take an in depth look at coin market capitalization and its relevance in the crypto market.

Coin Market Capitalization

What is a Digital Currency?

Digital currency can be defined as a form of currency that does not exist in the physical world. These currencies only exist in electronic or digital form. The transactions using such currencies are done via computers, phones, or electronic wallets. On the other hand, transactions involving physical currencies require the holder to have physical possession of such currency like coins or banknotes. In terms of utility, digital currencies are quite similar to physical currencies. Just like physical currency, digital currency can also be used to pay for goods or services. They also find use among few online communities like social networks, gambling portals, gaming sites, etc. The following are some of the advantages of digital currencies:

  • They have a faster transaction time
  • These coins are immune to physical defects as they are produced digitally
  • They facilitate ease in the introduction of monetary and fiscal policies
  • They reduce transaction costs

History and Evolution of Crypto Coin Market

The following table shows the timeline for how the crypto market has grown and evolved into the giant market that we know today:

DateEvent
1983American cryptographer David Chaum introduces the first known digital currency called ‘ecash’. 
1995Ecash implemented through Digicash, an early method of crypto electronic transactions
1996NSA publishes a paper called ‘How to Make a Mint: the Cryptography of Anonymous Electronic Cash’ which in detail explained a cryptocurrency system
1998A description of b-money is published calling it an anonymous, distributed cash system
2009The first decentralized digital currency, ‘bitcoin’ comes into existence 
2014The UK government announces a study of if and how cryptocurrency can help the economy
June 2021El Salavador becomes the first country to consider crypto as a legal tender
August 2021Cuba also recognizes bitcoin as legal tender 
September 2021China, the biggest crypto market in the world declares all crypto transactions as illegal

What Exactly is Coin Market Capitalization?

Marking capitalization in cryptocurrency can be defined as the total value of all the coins that have already been mined. In the cryptocurrency market, the total coin market capitalization is calculated by multiplying the total number of coins in the market with the prevailing price of the coin. 

In other words, market cap can be considered as a gauge for how stable any coin is going to be at any given time. The crypto market is so unpredictable that even Bitcoin, which has the markets biggest market cap, is still very volatile. For an easy comparison we can say that just how a big and strong ship is able to navigate safely through heavy weather, a currency with a larger coin market capitalization will be more stable than coins with smaller caps. Let’s take a look at an example to understand market capitalization a little better.

Example: Assume that an imaginary coin ‘A’ is currently worth $50, and it has a volume of 30 Million coins in the market. The market capitalization will be calculated as follows:

Coin Market Capitalization = Price of coin X Volume of coin

                                                $50 X $30 Million

Coin Market Capitalization of ‘A’ = $1.5 Billion

The total market capitalization is calculated by incorporating market data from a wide range of cryptocurrencies. The market capitalization takes in information from a number of coins like Bitcoin(BTC), Ripple (XRP), and EOS coin to provide a real time accurate picture of the crypto market. The total supply of these coins in the market is one factor that you should really be paying attention to. Many coins like BTC have imposed limits on their supply, which means that at any given time there will be no more than 21 Million BTC in the market. Coins with a larger market supply tend to be priced lower. Other than the value of the blockchain technology, the supply of coins seems to be one of the main determining factors of the price of any coin. 

How Relevant is Coin Market Capitalization?

In today’s crypto market , coin market capitalization is considered as an indicator of the relevancy of a coin. It can be argued that the market capitalization of a coin more or less indicates the relevance of a coin over a period of time. 

Crypto currencies with a higher coin market capitalization are generally regarded as safe investments. These are companies which have a market cap over $10 billion. Investing in a coin with large market capitalization is generally considered as a safe strategy as there is comparatively little risk involved. Mid-cap currencies on the other hand are slightly more unstable but have a greater growth potential.

Small cap currencies are considered risky investment options as they are often highly volatile. But these coins also have loads of potential for short-term growth. However, you should keep in mind that these coins are so volatile that they might literally crash from one minute to another. 

As with all investment options in the market, it is highly recommended that you do thorough research and consider all the other factors. For example, market capitalization as a metric is not a great indicator of trading volumes over the last couple of days or hours. 

Using Weighted Coin Market Capitalization Strategy

A weighted market capitalization strategy can be very useful for investors who are looking to invest in just Bitcoin and Ethereum(ETH). A weighted coin market capitalization strategy means that you proportionally invest in each of the assets based on market capitalization. 

For this method, you need to calculate the total market capitalization of both the assets put together. Now, you need to divide the percentage share that each crypto contributes towards the total. You should end up with 29% ETH and 71% BTC. This means if you were investing $100, then you should invest $71 in BTC and $29 in ETH.

While over the years experts have said that this method is not effective for any other coins than BTC or ETH, it may work just as well with any other altcoins in your portfolio. The best practice is to decide how much money you wish to invest on each of these assets based on the market capitalization. This way you can make sure that you invest less amount in altcoins and larger amounts in safer coins like BTC or ETH. 

Another important factor to consider is that the market is volatile and the coin market capitalization keeps changing. This fluctuation and the possibility of the entire market dropping out, is why experts advise on keeping any investment limited to an amount that you are okay with losing.

Top 10 Crypto by Coin Market Capitalization

The following are the top 10 cryptocurrency currently, on the basis of coin market capitalization:

Name Coin Market Capitalization ($) Price of Coin ($)
Bitcoin (BTC)1,088,746,113,02757,816.04

 

 bitcoin

Ethereum (ETH)427,749,376,7243,630.00 etc

 

ethereum-coin-market-capitalization-graph

 

Binance Coin (BNB)74,003,075,222478.88

 

Binance-Coin-market-capitalization-graph

Cardano (ADA)69,904,731,6572.18

 

cardano-coin-market-capitalization-graph

Tether USD (USDT)68,902,287,3610.9998

 

Tether-USD

Ripple (XRP)52,890,524,0051.13

 

Ripple

Solana (SOL)45,002,189,343151.08

 

solana

Polkadot (DOT)43,003,383,51741.36

 

polkadot

USD Coin (USDC)32,663,369,9301.00

 

USD-Coin

Dogecoin (DOGE)31,096,365,1020.2362

 

Dogecoin

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Frequently Asked Questions (FAQ)

How is coin market capitalization calculated?

The formula for calculating coin market capitalization is: price of the coin X volume of coin.

Which is the top crypto on the basis of coin market capitalization?

BTC is the top coin on the basis of market capitalization. BTC’s market cap currently stands at $1,088,746,113,027

What are altcoins?

Any crypto currency which is not BTC or ETH are called altcoins.