Today the rise in the value of digital assets leads to an increasing inflow of new funds into the crypto ecosystem. Investors typically rate cryptocurrencies based on several factors and try to predict their long-term value. So, the market cap is often used as an argument when deciding whether to buy a particular coin or token.
Right now, we are going to tell you how to calculate the market cap of cryptocurrencies so that you can make the right investment decisions. It’s not as complicated as it may seem at first glance. To get newbies up to speed, let’s start with the basics and definition of crypto market capitalization.
What is the market cap of cryptocurrency?
So, crypto market capitalization is a measure used to define the overall value and scope of the digital assets market. Bitcoin has long been at the top of the list for this metric. Market cap is determined by multiplying the current price of each coin or token by the total amount of digital assets in circulation.
Note that market capitalization does not always indicate the greater popularity of a cryptocurrency. Let’s take Bitcoin and Ethereum as an example:
- BTC now has a much higher cost. As a result, it is far ahead of ETH in terms of market capitalization.
- The total amount of ETH in circulation is much higher. About 121 million tokens are now in use, compared to 19.39 million BTC (as of January 2023).
- However, because ETH is worth less, the market capitalization of this asset is more than half that of BTC.
When analyzing cryptocurrency, you need to consider the diluted market cap. By figuring it out, you can see how undervalued/overvalued a particular asset is. This metric is produced when you multiply the number of all coins that could exist by the price of each coin.
Calculating the market capitalization
As we said above, to determine the market capitalization, you need to multiply the current price of the cryptocurrency by its circulating supply. Let’s break this down a bit more so that you can easily make calculations in the crypto market:
- Crypto market cap = current price x circulating supply. Let’s consider the first figure is $200 and the supply is 20,000 tokens.
- Crypto market cap = $200 x 20,000 = $2,000,000. This means that the total cost of all tokens is $2,000,000 at the current price.
This is an important metric in a crypto market used by investors and analysts to check the size and potential of cryptocurrency. If you don’t want to do the math yourself, there are options such as Trading View or CoinMarketCap.
Are there any problems with a crypto market cap?
The formula for determining market cap seems simple, but there are several important things to consider. The main difficulty is that all metrics on the cryptocurrency market are not static. Every second the cost increases and decreases, and the assets are either issued or burned (if the protocol provides for it).
In addition, many coins are lost. Someone forgot a password, someone’s hard drive burned out, and in some cases, the assets were stolen. So, the figures quoted today are only close to reality. Everyone knows how many assets have been created, but whether they exist at the moment is a mystery.
Why should you care about the market cap?
First of all, it is an evaluation of the attractiveness of an asset on the crypto market. By studying this metric, you can see in which direction capital is moving, and this info is helpful when deciding to buy or sell crypto. Cap is also used to compare various assets and even economic sectors.
This is an important economic indicator that helps to assess the open interest of investors. However, as practice shows, this fact doesn’t guarantee further growth of the asset. Make a balanced decision and don’t forget the risks.
To Sum It Up
The cryptocurrency market is very unstable and each exchange shows its pricing policy. This is why the figures of the market cap will not be the same at various times of the day. However, despite the impossibility of getting perfectly accurate figures, the crypto market continues to flourish and develop, attracting more and more investors.