Investing in cryptocurrencies is one of the most popular and profitable investment strategies that one could use. Many people who have invested in crypto have managed to earn passive incomes and even attain financial independence through them. But simply investing in cryptocurrencies blindly will not help you achieve it. One important parameter to look at before investing is the market cap crypto.
So if you have ever wondered what capitalization in crypto is and how to use it to make investment decisions, then read our detailed guide below.
What Is the Capitalization of the Cryptocurrency Market?
It is not a term that is exclusive to the crypto markets. It has existed in the traditional financial markets since the very beginning. It simply is the total value of the assets in circulation and available to invest. In terms of crypto, it is the value of the asset in the markets.
The ranking of cryptocurrencies is done in terms of their capitalizations. This makes BTC the top crypto by market cap. When it comes to the total cap of the cryptocurrency markets, it is the total value of all the assets in the markets, and the higher the cap, the better the condition of the markets.
Calculating the Total Market Capitalization of a Cryptocurrency?
The formula to calculate it is pretty simple and can be calculated by adding the cap of all the assets, such as BTC, ETH and other altcoins in the crypto industry. The formula for calculating the cap of any asset is as follows.
Capitalization = Price x Circulating Supply of the Asset
It is important to understand that the cap is not a fixed number. It can vary depending on the price of the underlying assets and their circulating supply. The total capitalization of crypto crossed $3 trillion in 2021 and has come down since then.
Calculation of Individual Cryptocurrency Market Capitalization?
In order to calculate the capitalizations of individual cryptocurrencies, it is important to know two things — their current price and the circulating supply. The circulating supply is a completely different thing from the total supply. E.g., the total supply of BTC is 21 million, but its circulating supply is 19.29 million. Its cap is calculated by multiplying the price by the supply.
We know that prices change due to volatility, but tokens in circulation can also change. This change is brought about by various factors such as token burn, token unlocks, minting of new tokens, etc.
Calculating the Market Capitalization of Any Cryptocurrency?
You can simply take the current price of a token and multiply it by the quantity in circulation. The data is easily available on the Internet and once you have calculated the cap of the asset, you can decide whether you want to invest in it.
A higher capitalization of an asset means that the interest in it is high and lesser the volatility in its price. But it should be understood that if a cryptocurrency has 1 trillion tokens in circulation, for example, then its price can never go as high as that of BTC, ETH or other highly ranked assets.
Cap is a tool that has withstood the test of time across traditional financial markets and is one of the benchmarks in crypto markets as well. If you are investing in any cryptocurrency, you need to understand all the parameters and use all the tools.
This is important because cryptocurrencies are highly volatile, and investing in a volatile asset could result in huge losses. It is not the only parameter to look at, but it is one of the first things to consider before making a crypto investment.