Market capitalisation
Understanding Cryptocurrency Market Capitalisation (Market Cap)
Welcome to the world of cryptocurrency! If you're just starting out, you'll hear a lot of new terms. One of the most important is "market capitalisation", often shortened to "market cap". This guide will break down what market cap is, why it matters, and how to use it when looking at different cryptocurrencies.
What is Market Capitalisation?
Imagine you want to buy a share in a company like Apple. You look at the price of one share, let's say $170. But knowing the price alone doesn't tell you how *big* Apple is. To figure that out, you need to know how many shares exist.
Market capitalisation is the same idea, but for cryptocurrencies. It's a way of understanding the *total value* of a cryptocurrency.
It's calculated by multiplying the current price of one coin or token by the total number of coins or tokens in circulation.
Market Capitalisation = Price per Coin x Circulating Supply
- Price per Coin: How much one unit of the cryptocurrency costs right now.
- Circulating Supply: The number of coins or tokens that are currently available to the public and being traded. It *doesn’t* include coins held by the project team or locked up in other ways.
Let's look at an example:
If Bitcoin (BTC) is trading at $60,000 and there are 19.65 million Bitcoin in circulation, then:
$60,000 x 19,650,000 = $1,179,000,000,000 (or $1.179 Trillion)
Therefore, Bitcoin's market capitalisation is $1.179 trillion. This makes it the largest cryptocurrency by market cap.
Why Does Market Cap Matter?
Market cap is a useful tool for a few reasons:
- Size and Dominance: It gives you a sense of the cryptocurrency’s size and influence in the market. Larger market caps generally indicate more established cryptocurrencies.
- Risk Assessment: Generally, cryptocurrencies with larger market caps are considered *less* risky than those with smaller market caps. This is because they tend to be more stable and have more liquidity (easier to buy and sell). However, this isn’t always true, and all crypto investments carry risk. See Risk Management for more information.
- Comparing Cryptocurrencies: Market cap allows you to compare the relative sizes of different cryptocurrencies. You can see which ones are leading the market and which are smaller, up-and-coming projects.
- Potential Growth: While not a guarantee, smaller market cap coins *potentially* have more room to grow, but also carry more risk.
Market Cap Categories
Cryptocurrencies are often categorised based on their market caps:
| Market Cap Category | Example (as of late 2023/early 2024 - values change constantly!) | Characteristics | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Large Cap | Bitcoin (BTC), Ethereum (ETH) | Established, generally more stable, higher liquidity. Often considered "blue chip" crypto. | Mid Cap | Solana (SOL), Cardano (ADA) | Growing, moderate risk, potential for significant gains, but also more volatile than large caps. | Small Cap | Many newer or smaller projects | High risk, high reward potential, very volatile, often less liquid. Requires significant research. |
Keep in mind that these categories are fluid, and a cryptocurrency can move between them as its price and circulating supply change.
Where to Find Market Cap Information
You can find market cap information on many websites, including:
- CoinMarketCap
- CoinGecko
- Most cryptocurrency exchanges, such as Register now, Start trading, Join BingX, Open account and BitMEX.
These sites also provide information on price, trading volume, and other important metrics.
Market Cap vs. Fully Diluted Valuation
It's important to understand the difference between *market capitalisation* and *fully diluted valuation*.
- Market Capitalisation: As we've discussed, this uses the *circulating supply*.
- Fully Diluted Valuation: This uses the *total supply* of coins or tokens. This includes coins that haven't been released yet (e.g., those held by the project team or scheduled for future release).
Fully diluted valuation can give you a more complete picture of a cryptocurrency’s potential future value, but it can also be misleading. If a large number of tokens are held by the team and may never be released, the fully diluted valuation will be artificially high.
Putting it into Practice: How to use Market Cap in your Research
When researching a new cryptocurrency, consider its market cap alongside other factors like:
- The project’s fundamentals: What problem is the cryptocurrency trying to solve? See Decentralized Finance (DeFi).
- The team behind the project: Are they experienced and credible?
- The technology: Is it innovative and secure?
- Trading Volume: See Trading Volume Analysis
- Technical Analysis: Look at Chart Patterns and Indicators
Don't rely solely on market cap to make investment decisions. It's just one piece of the puzzle. Also, if you are looking to trade futures, check out a platform like Register now.
Additional Resources
Here are some related topics to explore:
- Cryptocurrency Exchanges
- Blockchain Technology
- Decentralized Applications (dApps)
- What is a Token?
- What is a Coin?
- Wallet Basics
- Security Best Practices
- Candlestick Charts
- Moving Averages
- Relative Strength Index (RSI)
- Fibonacci Retracements
- Order Books
- Limit Orders
- Stop-Loss Orders
- Dollar-Cost Averaging (DCA)
- Portfolio Diversification
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