Oct 03, · Market capitalization refers to how much a company is worth as determined by the stock market. It is defined as the total market value of all . Bitcoin what does market cap mean, Insider reveals: You have to read! If the demand for bitcoins. The art of trading is to decide when A crypto is in breathe mode and when it reached the bottom after falling. What is easy to say in retrospective is a hard uncertainness in the tell, which behind never be answered with absolute state of mind. Nov 09, · Bitcoin Dominance: A Brief Definition. Calculating BTC dominance is straightforward. Let's imagine that the total market cap of all cryptocurrencies currently stands at $ billion. If Bitcoin's market cap represented $60 billion of this, Bitcoin's dominance would stand at 60%. See? It couldn't be easier. BTC Dominance Over the Years.
Bitcoin what does market cap meanMarket Cap Meaning for Cryptocurrency and Why it's Important
Government actions play a part. And, exchanges sometimes create dramatic effects in price. Investor psychology also plays a role in short-term price variations. Bitcoin benefited from something known as the Thanksgiving Effect in Bitcoin enjoyed a good ride prior to the holiday and enjoyed continued success as a result. Does a higher price necessarily equal value?
Not necessarily. Stock market analysts use the market capitalization of companies to make informed investment decisions. Market capitalization market cap simply defines the current share price multiplied by the total number of existing shares. In cryptocurrency terms, this means the current price of a coin times the total number of coins in the market, often referred to as circulating supply.
Assume TickleCoin mints coins to where the supply now contains 2,, without any change in price. As a general rule, this shows us the amount of investment risk involved. Stocks categorize broadly as small cap, mid cap, and large cap as the market cap increases. Small cap companies inherently present more risk because of potential company failure. However, they yield tremendous reward to early investors when they succeed. You can also use market cap to take snapshots of company or cryptocurrency groupings.
That gives you the market cap for that sector. Similarly, do the same for a group of cryptocurrencies. Take the privacy coins, for instance, calculate their market caps, and add them all together.
That number gives you a picture of the value of the privacy coin space. You can use the sum of individual market caps to estimate the market caps of an entire sector. However, these cryptocurrencies also potentially have more room for growth. Your challenge is to determine which of these low-cap coins could bring as much value to the world or close to as much value as Bitcoin has. Another aspect of cryptocurrency market capitalization to consider involves market manipulation.
Small market caps lend themselves to price manipulation more readily than large caps. Bad actors exploit small market cap coins by controlling enough of the total supply to create large price movements in one direction or another.
Cryptocurrency market capitalization provides no information regarding the future direction the price will take. No part of the equation determines the future coin supply. Instead, the code defines whether the system will mint future coins. And If so, at what pace. Some cryptocurrencies cap the total supply of coins while others create an infinite supply. The Bitcoin network caps the total number of bitcoins at 21 million. As for Ethereum, Vitalik Buterin speaks favorably of a system where existing Ether gets burned out of the available supply to avoid inflation.
Not all rare books command a high price. Market cap in and of itself tells us nothing about the velocity or direction of the coin, whether explosive growth or gradual decline.
But, calculating market cap over a period of time could reveal trends. For crypto, the number of dead coins is a unique factor that also influences the market cap. Some people lose their wallet. To understand how differently market cap works for stocks and crypto, you need to have a basic understanding of how stocks work.
Owning stock in a company will give you a share of its ownership. Ownership broadly means two things:. The total value of all the shares is the market cap of the company. Now, in the case of cryptocurrencies, a large portion of the tokens is held by the company behind the project and by whales who just eat up the tokens and keep them dormant in their wallets.
NOTE: Whales are rich investors who use their financial clout to buy huge amounts of a particular cryptocurrency. Remember, most of these stocks pay dividends. So, the stocks that the owners will have will earn them dividends, which in turn is going to dilute the stocks owned by the other shareholders.
However, this is not the case with cryptocurrencies. When a whale hoards up tokens in their wallets, it just lies there. How many stories have you heard about folks having hundreds of bitcoins in their pen drive and then completely forgetting about it?
If a big portion of the supply is locked up, then this seriously affects the liquidity of cryptocurrency and the coins get spent more often.
Suppose there is a hypothetical crypto called A Coin which has a total supply of million coins. Now, imagine that some whales have bought and stored away 50 million A coins. So, now we only have 50 million coins available for trading. Imagine that A Coin really goes off and people start trading more and more, they will only have 50 million coins to trade with instead of million As such those 50 million coins are going to be spent more often.
Bitcoin is the perfect example of this. According to this article , 9. Overspending leads to high token velocity. Token velocity increases when people are selling off their tokens at a faster rate. High token velocity means low network value. Since these tokens have low liquidation, the velocity invariable increases. So, more the trading volume aka more that coin is traded more the velocity.
Consequently, less the network value, more the velocity. What all this basically means is that market cap may not be the best metric to judge the value of a cryptocurrency. Like we have stated above, there is a critical difference between the market cap for stocks and the market cap for cryptos. In that case, the market cap is a pretty accurate metric. Without all these metrics, market cap is not really the best method to judge the actual value of a cryptocurrency. While market cap is a good metric to guess how valuable a cryptocurrency is, there are several other factors that one must take into account.
If you are looking to invest then please keep in mind that market cap is just one of the many tools out there. You should thoroughly research the projects that you are interested in and ask around to get a full knowledge of their growth potential. Knowing their market cap will only get you so far.
Join our community and get access to over 50 free video lessons, workshops, and guides like this! No credit card needed! So, what does this have to do with market cap? Cryptocurrency Market cap: Conclusion. Rajarshi Mitra. Back to Guides. Tweet Share Like what you read? Have a question? Ask our Community.