What is Market Cap in Crypto and How Does it Work?

What is Market Cap in Crypto?

Market capitalisation (or market cap) is a metric that measures the total value of a cryptocurrency. It's calculated by multiplying the current market price of a particular coin or token with the total number of coins in circulation.

How is Market Cap Calculated?

Market cap is calculated by multiplying the current market price of a cryptocurrency by the total number of coins or tokens in circulation.

For example, if the current price of Bitcoin is $40,000 and the total number of Bitcoin in circulation is 18.6 million, then the market cap of Bitcoin is $744 billion.

Market cap is calculated using the following formula:

Code snippet
Market Cap = Current Price x Circulating Supply

• Current Price: This is the price of a coin or token at a given point in time. You can find the current price of a cryptocurrency on most cryptocurrency exchanges.
• Circulating Supply: This is the total number of coins or tokens that have been mined and are currently in circulation. You can find the circulating supply of a cryptocurrency on the cryptocurrency's website or on a crypto data website like CoinMarketCap or CoinGecko.

For example, if each unit of a crypto is being traded at $10.00, and the circulating supply is equal to 50,000,000 coins, the market cap for this crypto would be $500,000,000.

What Does Market Cap Tell Us?

Market cap can be used to compare the relative size of different cryptocurrencies. For example, if Bitcoin has a market cap of $1 trillion and Ethereum has a market cap of $200 billion, then Bitcoin is considered to be more valuable than Ethereum.

Market cap can also be used to track the performance of a particular cryptocurrency over time. For example, if the market cap of Bitcoin has been increasing steadily over the past year, then this could be seen as a positive sign for the future of the cryptocurrency.

However, it's important to note that market cap is not the same as the total value of all cryptocurrency transactions. This is because market cap only takes into account the value of the coins or tokens that are currently in circulation.

What Are the Limitations of Market Cap?

Market cap has a number of limitations. First, it's not a real-time measure of value. This is because market cap is calculated using the current price of a crypto, which can fluctuate rapidly.

Second, market cap does not take into account the total number of coins or tokens that have been mined but are not yet in circulation. This means that market cap can underestimate the true value of a crypto.

Third, market cap is not a measure of liquidity. Liquidity refers to how easy it is to buy and sell a cryptocurrency. A cryptocurrency with a high market cap may not be very liquid if there are few buyers and sellers in the market.

How Can Market Cap Be Used?

Market cap can be used in a number of ways. It can be used to compare the relative size of different cryptocurrencies, track the performance of a particular crypto over time, and identify undervalued or overvalued cryptocurrencies.

However, it's important to remember that market cap has a number of limitations. It's not a real-time measure of value, it does not take into account the total number of coins or tokens that have been mined but are not yet in circulation, and it's not a measure of liquidity.

Here's an example of how you can use market cap:

Let's say you're interested in investing in cryptocurrency, but you're not sure which one to choose. You could look at the market caps of different cryptocurrencies to see which ones are the most valuable. For example, if you see that Bitcoin has a market cap of $1 trillion and Ethereum has a market cap of $200 billion, you might decide to invest in Bitcoin because it's the more valuable cryptocurrency.

Conclusion

Market cap is a useful metric for understanding the relative size and performance of cryptocurrencies. However, it's important to remember that it has a number of limitations and should not be used as the only measure of a cryptocurrency's value.

For more interesting content, click to subscribe to the Crypto Unplugged Podcast.

Want to learn technical analysis and become a better trader in cryptocurrencies?

Our Premium Technical Analysis in Cryptocurrencies Course will teach you everything you need to know to start trading crypto like a pro.

In this course, you will learn:

The basics of technical analysis
How to use charts to identify trends and patterns
How to develop a trading mindset
How to manage your risk
And much more!

The course is taught by experienced traders who have been in the market for years. They will share their knowledge and expertise with you so that you can start trading crypto with confidence.

Sign up for the course today and start learning how to trade crypto like a pro!

Click here for more details.