Market cap is a well-known term in the field of stocks as well as cryptocurrency. Understanding the market cap can give us an oversight of the crypto market. You might think that knowing the price of certain crypto or the way its price flows will provide you with the assurance you need to have for investing in it. Is that so?
Market Cap is not the price of the token but the amount of support a specific altcoin has. Market cap is a measure for evaluating and following a certain market like cryptocurrency. The higher the market cap of crypto, the more dominant it looks. That is why some believe that this is a very significant factor before deciding to invest and risk your asset.
In the following section, we will introduce a market cap in general and a crypto market cap to help you better understand the concept.
In case you wish to learn about crypto and other related concepts you can check out the Bitunivex website.
What is Market Cap?
Market Capitalization, also known as Market Cap, is the total market value of a company. Since it displays the market value of a company, it is computed based on the CMP (current market price) of its shares. It is also used to compute and classify companies’ size among analysts and investors.
Market Cap is the market value of outstanding shares of any publicly-traded company. It equals the number of outstanding shares multiplied by the share price. Shares outstanding are a company’s stock held by all its shareholders consisting of restricted shares owned by its officeholders and insiders and share blocks held by institutional investors. You can see these shares under the name of “Capital Stock” on a company’s balance sheet.
Since outstanding stock is traded in public markets, capitalization could be used to show the public opinion of a company’s net worth and is a decisive factor in some forms of stock valuation.
While capitalization can be a significant factor for stock market investors, it may not be as significant for crypto investors. Stock market capitalization can help investors form and preserve a balanced investment portfolio; experts say that does not apply to crypto investors.
Crypto market cap
The cryptocurrency market cap is the whole value of a cryptocurrency. It is a simple way of finding out how big a digital asset is — and it can help you make better investment decisions.
How can we figure out a crypto market cap? It is easy. You have to multiply a coin’s current price by the total number in circulation. For example, if an altcoin’s price is 10 dollars and has a circulation of 5 million. Multiplying these two tells us that the crypto market cap is 50 million dollars. Since a company has a certain number of outstanding shares, multiplying X with the per-share price signifies the total dollar value of the company.
Outstanding shares are all shareholders’ total number of shares, including share blocks held by institutional investors and restricted shares owned by the company’s majors and insiders.
There are three factors when it comes to finding the value of the crypto market cap:
1-The asset in circulation: the amount of crypto a network releases for the public in the market.
2-The total supply: The amount of crypto released to the public plus the amount locked up or reserved by the network for various reasons.
3-The maximum supply: This is the amount of crypto that will possibly exist (when a certain number is reached, no more coins will be minted, mined, or created anymore).
You can check out the current crypto market caps on the Bitunivex platform.
Types of Market Capitalization
The capitalization represents a dollar value that may vary extensively; different buckets and associated nomenclatures classify the different market cap ranges. These are the commonly used standards for each capitalization:
Mega-cap companies have a market cap of 200 billion dollars or higher. They are the largest publicly traded companies by market value. These usually represent the leaders of a specific industry sector or market. Not many companies qualify for this category
2. Large Cap
These companies have a market cap between 10 billion to 200 billion dollars, like International Business Machines Corp. General Electric (GE) and (IBM) are large-cap stocks with market caps of 117 billion and 125 billion dollars, respectively. Both large-cap and Mega stocks are called blue chips and are considered to be relatively secure and stable. However, there is no assurance that these companies are preserving their stable valuations as all businesses are subject to market risks.
3. Mid Cap
Stocks range between 2 to 10 billion dollars, and these companies are more unstable than the large-cap and mega-cap companies. Growth stocks signify a major portion of the mid-caps. These companies may not be there, but they might be on their way to becoming a major one. Like JNPR has a market cap of 9.2 billion dollars.
4. Small Cap
These companies have a market cap between 300 million to 2 billion dollars. While the bulk of this group comprises quite young companies that may have growth potential, a few established old businesses that might have lost value recently for a variety of reasons are also on this list. For instance, BBBY (Bed Bath & Beyond) has a market cap of 2.3 billion dollars.
5. Micro Cap
These companies have a market cap between 50 to 300 million dollars. The rising potential of such companies is high if they succeed; the downside potential is equally worse if they fail. Investments in these companies may not be fearful and require more due diligence.
6. Nano Cap
These companies are high-risk, high-reward layers beyond the micro-caps. These companies have market caps below 50 million dollars. They are the riskiest, and the potential for gain varies widely. These stocks normally trade on the pink sheets or OTCBB (Over-the-Counter Bulletin Board). You should keep in mind that mega- and large-caps have lower risks and slower growth than the others; on the other hand, the other types may give you a high rate of profit or take you down.
Importance of Market Capitalization
Some investors and traders (mostly the inexperienced ones) can mistake a stock’s price to accurately represent that company’s health, worth, and stability. They might get a higher stock price to measure the company’s stability or a lower price as an investment existing at a bargain.
You should know that a large-cap might have more room to invest a few hundred million in a new stream of business and might not take a big hit if the venture drops. However, the smaller the capitalization becomes, the bigger the company will take the hits.
Both stock investors and investors of various funds need to have an understanding of the market cap since they can help investors know where they are putting their hard-earned money.
Crypto Market Cap for Investors
An investor might decide to split their investment into these groups for different reasons in the stock market, so knowing the market cap is imperative. Market Cap shows how much a company is worth and how much a big investor supports it. Look at the market cap of Bitcoin, Ethereum, Cardano, etc.
Conversely, cryptocurrency is new, so new that these categories are not formed yet. Knowing the crypto market cap may be interesting if you want to know the potential or scope of a certain token. However, it is usually not a big factor when one wishes to invest in crypto as it is in the stocks market.
Some experts state that the crypto market cap is an unwanted legacy of the stock market — leading to wrong investment decisions and contributing to considerable levels of fear and greed. Although cryptocurrency market caps are not without use, they give us an overview of how altcoins are performing, which is a much-needed source of objectivity away from social media.
Knowing this can help you make well-versed investment decisions about digital currencies in real-time as blockchain technology, and crypto-assets continue to gain momentum.
What Is Total Market Cap?
A factor you can keep your eye on when it comes to altcoins is the total supply. For example, BTC has a fixed number of coins (21 million), and others have a much greater number of coins (XRP has a supply of 1 billion). Coins with a larger supply are usually cheaper.
When you check out crypto, and you wish to decide whether to invest in it or not, you can see the market capitalization and not the price of each coin. For example, when you compare two coins, and one of them has a higher price, look at the market cap, and you might find that the cheaper coin has triple the market cap of the other one.
The total supply (the coins that are in circulation plus the locked up and reserved coins) calculates a crypto market cap. The maximum supply is the predicted number of a particular coin that could ever exist. In this method, you can calculate market capitalization by multiplying an altcoin’s price by the maximum number of coins that ever exist (this is not easy).
Market cap Calculation
There is a formula in market cap: MC=P×N
MC: market capitalization
N: number of shares outstanding
P: the market price per share
Let’s give you an example of a company that has 2 million shares outstanding and the closing price per share is 10 dollars, its market capitalization is 20 million dollars:
2,000,000× 10= 20,000,000
If the closing price per share rises to 11dollars, the market cap becomes 22 million dollars. If it drops to 9 dollars per share, the market cap falls to 18 million. This is in contradiction to mercantile pricing, where average price, purchase price, and sale price may vary due to transaction costs.
Not all of the outstanding shares are traded on the open market. The number of shares trading on the open market is named the float. The float is equal to or less than the number of shares outstanding because N includes shares that are constrained from trading.
Crypto Market cap Calculation
The formula for this is as follows: The current price of the crypto× the total coins in circulation (all existing coins in the market = Crypto market cap. The process of calculating is exactly like the example in the previous section.
Although many do not believe that the crypto market cap is irrelevant, you may want to check out the market cap of the crypto before deciding to invest in it, especially if you do not like to gamble on your asset.