What is Crypto Market Cap and How To Calculate It?
- Market capitalization (or market cap) refers to the total value of all a company’s shares of stock.
- In crypto, market cap is used to understand the value of an asset and its growth from a broader perspective.
- The total crypto market cap is a measure that depicts the value of the entire crypto industry. The value is derived by adding together the market cap of all cryptocurrencies.
If you’ve ever invested in stocks or mutual funds, you’ll know the importance of the term market capitalization. Market capitalization (or market cap) refers to the total value of all a company’s shares of stock. It is calculated by multiplying the price of a stock by its total number of outstanding shares. For example, a company with 20 million shares selling at $50 a share would have a market cap of $1 billion.
This concept also applies to the crypto space because knowing the market cap of individual assets and the crypto sector as a whole can be an important factor towards better understanding the direction of the market.
Why should you care about Market Capitalization?
Market cap measures what a company is worth on the open market and the market’s perception of its future prospects. Thus, market capitalization is a simple, yet effective measure of how valuable a particular company or an industry is. It maps the current growth trajectory of a company and also helps predict its future course. As a whole, market cap is a measurement that can help people make wise investment decisions.
In crypto, market cap is used to understand the value of an asset and its growth from a broader perspective. However, this is separate from the “total crypto market cap,” which can help shed light on where crypto stands in comparison to other sectors of the economy.
How to calculate market cap of a Crypto Asset?
For individual cryptocurrencies, the market cap is the total value of all the coins or tokens that have been mined. It is relatively simple to calculate this number, which is derived by multiplying the price of a single coin with its total circulating supply. Let’s calculate the market cap of Bitcoin (BTC) to better understand this concept.
|Market Cap = the price of individual coin x total circulating supply|
As of April 2021, the price of an individual Bitcoin is $55,165. The total circulating supply is 18,686,162 BTC. In order to get the market cap of Bitcoin, we need to multiply these two values.
Thus, Bitcoin’s Market Cap = $55,165 x 18,686,162 = $1,030,837,521,611. Therefore, the total market cap of Bitcoin is $1.03T. We can apply the same concept to the other crypto assets as well.
How to calculate a Fully Diluted Market Cap
Diluted market cap is a measure that gives us an idea about the future growth of the network, and is calculated by multiplying the current value of an individual coin with the total intended supply.
|Diluted Market Cap =
current price of an individual coin x total intended supply
For example, Bitcoin has a max supply of 21 million, but there are currently 18.6 million BTC in circulation. This means in the future, all 21 million coins will eventually be in circulation. So when we multiply this with the current price of 1 BTC, we get a Bitcoin Fully Diluted Market Cap = $55,165 x 21,000,000 = $1,158,476,473,502. Thus, the fully diluted market cap is approximately $1.1T.
Crypto Asset Classification By Market Cap
Based on their market cap, crypto assets are classified into three major categories.
- Large-cap cryptocurrencies: Cryptocurrencies that have a market cap greater than $10B are considered to be large-cap cryptocurrencies. Coins like Bitcoin (BTC) and Ether (ETH) make this list. Large-cap cryptocurrencies have seen substantial growth over the years and are considered to be low-risk investment options.
- Mid-cap cryptocurrencies: Cryptocurrencies that have a market cap between $1B and $10B are considered to be mid-cap cryptocurrencies. These cryptocurrencies have the potential to see enormous growth in the future.
- Small-cap cryptocurrencies: Cryptocurrencies that have a market cap of less than $1B are considered to be small-cap. They are considered to be risky investment options but could also see enormous gains.
What is The Total Crypto Market Capitalization?
The total crypto market cap is a measure that depicts the value of the entire crypto industry. The value is derived by adding together the market cap of all cryptocurrencies, including Bitcoin, altcoins, stablecoins, and tokens. This is a very important metric as it shows the potential growth of the entire crypto industry. However, because cryptocurrencies are highly volatile the total crypto market cap can change drastically from time to time.
In April 2021, this value surpassed $2T, marking an important milestone in the history of crypto. However, with a market cap of $1.03T, Bitcoin occupies more than 50% of the entire crypto market cap. This is called “Bitcoin Dominance.”
Apart from this, the five other major coins, Ether (ETH), Polkadot (DOT), Tether (USDT), and Cardano (ADA) account for $422B or up to 20.5% of the total value. The remaining 28% of the market is occupied by other smaller coins.
While there are some investors who swear by a market cap, there are still some who believe that market cap does not provide an exact estimate of a crypto asset’s value. Nevertheless, it is an important metric to analyze while keeping a close eye on other metrics as well.