Economics purists and trading experts have always stated their reservations about market cap as the primary factor in defining the popularity and market dominance of a cryptocurrency. On the other hand, crypto experts believe that with whatever relevant financial metrics are available today and seeing that the market is still evolving, there’s nothing better than a crypto market cap as a benchmark to judge the popularity of a coin.
With time, there will be stability in the market and will be more organized, which might pave the way for finance experts to come up with several other metrics to decide a cryptocurrency’s popularity in the trading market.
How is the market cap of a cryptocurrency calculated?
If the Bitcoin market cap today is $631 billion and the current Ethereum market cap is around $245 billion, crypto traders consider Bitcoin to be the more dominant form of currency.
The formula used to calculate market cap in the cryptocurrency market is very simple. The current price of a currency is multiplied by its circulating supply.
Circulating supply is the number of coins circulating in the market (available to the public).
Market cap of a cryptocurrency = Current price X circulating supply.
So, for example, if Bitcoin price today is $33508 and the circulating supply is 18,753,393 BTC, the Bitcoin market cap will be:
BTC Market Cap = 33508 X 18,753,393 = around $627 billion
It is important to know that total supply is NOT considered to calculate the cryptocurrency market cap. It’s only the actual supply (that is available to the public) that is considered for the calculation.
Understanding the types of market cap in cryptocurrency trading
The first is the large-cap cryptocurrencies, which are the most trusted ones by crypto investors for investments, whether long-term or for day trading. At some point of time in 2022, they had a market cap of more than $10 billion. They are usually less volatile but looking at the recent trends in the crypto market, even the cryptos with the largest market caps can see wild price swings and are highly sentiment-driven, affected by everything from China’s crackdown on miners or Elon Musk deciding not to accept Bitcoins for Tesla.
But with time, large market cap cryptos have shown that they bounce back, and with investments from large companies and big investors across the world, they show a lot of potential in being stable. But in any case, they remain much more volatile than any other form of investment like gold, stocks or real estate. Anything that can lose $2 trillion in market worth is for sure the most volatile thing.
Mid-cap cryptos are more volatile, but traders who like to take some risk to enjoy more rewards generally target these. They are seen as much more promising by the crypto traders in comparison to the large-cap ones due to their future growth potential and quick returns on investments.
Small-cap cryptocurrencies are extremely volatile, get wiped off from the market easily and, therefore, are considered a high-risk investment. Based on their judgments, crypto investors consider some of these for long-term investments as they have the highest potential to make fortunes for them.
