What is crypto market cap and how it works

The crypto market cap is a typical cryptocurrency phenomenon also known as the market capitalization. It refers to the total size occupied by a certain cryptocurrency in the market.

This is a particularly interesting phenomenon because Allows the value of a cryptocurrency to be measured objectively, providing a more complete picture suitable for comparing the value of cryptocurrencies with different characteristics. This is a true indicator, which can give concrete information with respect to the growth potential of a cryptocurrency, allowing one to determine whether compared to others it is indeed a reliable circuit.

Market capitalization: meaning

To understand the market cap what it is, it is necessary to keep in mind that we are dealing with a concept applied to the cryptocurrency industry and beyond. It refers, in fact, to the total value of a company's shares outstanding in the market. It is calculated from the number of Company's shares on the market Than the current price of the same.

The crypto market cap is nothing more than the declination of capitalization for the cryptocurrency sector. It is calculated from the total number of coins subjected to mining by multiplying by the price of the individual coin at a given historical moment (exactly day).

Let's try to explain ourselves better with a example concrete. As of July 2021, there were 116.8 million Ethereums in circulation, one of the most popular virtual currencies. The value for the market cap cryptocurrency? To find out, it is necessary to multiply the value of the Ether price for that specific day (July 21, 2021 was equal to 1,588.61): the July 21, 2021 market capitalization of Ethereum amounted to 185.5 billion.

The concept of cryptocurrency markets can be compared by asking a question: How stable a certain cryptocurrency will be able to remain? He then intervenes on one of the most controversial and noteworthy points when dealing with cryptocurrencies: volatility, which is significantly higher and more unstable than that of traditional systems.

Therefore, it is good to keep in mind that a cryptocurrency with a larger market capitalization has a better chance of being a stable investment than another virtual currency that has a smaller crypto market cap.

It means, to explain it in simple words, that when the crytpo market cap is higher, the exposure to market risk factors is lower; otherwise, when it is lower, the probability of the cryptocurrency navigating unstable conditions is significantly higher.

What is the purpose of capitalization

Cryptocurrency capitalization is an indispensable tool for those who wish to invest in cryptocurrencies while taking the least possible risk. It allows, in fact, to Compare and classify different virtual currencies found in a particular target market.

It proves as intriguing as ever in relation to further concepts such as those of circulating supply or fully diluted supply. Figures that indicate, for the supply in circulation the number of virtual coins for that particular cryptocurrency that are circulating, while for the fully diluted offer The number of coins that will undergo mining at the end.

Why are these concepts important? Because they turn out to be used by those who measure the crypto market cap, putting it in a relevant and appropriate framework. Some prefer to avail themselves of the supply then in circulation, others the figure that is fully diluted. Different viewpoints that are part of one phenomenon, but result in different outcomes.

The market cap results in the classification of cryptocurrencies depending precisely on their market capitalization. There are three levels present:

• Cryptocurrencies with high crypto market cap. These include Bitcoin and Ethereum, whose capitalization exceeds more than $10 billion. They are considered more reliable coins, having lower risk due to lower volatility.
• Cryptocurrencies with intermediate crypto market cap. This category includes virtual currencies that see capitalizations that fall in the range of $1 billion to $10 billion. They are valued less stable and with more risk than their predecessors, although they have a margin trending upward.
• Cryptocurrencies with low crypto market cap. The risk is definitely higher, as these cryptos are much more exposed to movements, even sudden ones, in a market as sensitive as virtual currencies. To fall within this parameter it is necessary that they present a capitalization to the billion dollar mark.

Importance of capitalization

 We have told you so far what the crypto market cap is, how it works and what it allows. The reason why it turns out to be an essential tool for anyone wishing to invest online with cryptocurrencies is to be found in the fact that it is something that allows you to accessing hard data.

The level of the cryptocurrency in the market lets you know how stable it is at that moment, but also its performance in the medium- to long-term perspective. An effective measure to deepen one's understanding of the market and its evolution over time.