When you are starting out in the world of crypto, there are a few terms that you will see over and over again. One of these is the phrase cryptocurrency market capitalization, or you may see that cryptocurrencies are marked by something known as their market cap.
This is an important concept to become familiar with early on in your career with cryptocurrency because understanding what it means can inform your decisions when trading.
In this short guide, we are going to explain what market capitalization is so you can make more informed decisions from here on out.
What Is Market Capitalization?
When you see the phrase crypto market cap, it is referring to what is an already familiar concept to those in the world of investing.
Market capitalization, shortened to market cap in most cases, refers to the total coin value of a currency which is based on how much of it is in circulation. This is a calculation that works in all forms of trading, including the stock market.
For the market cap in stock, it provides a way of determining the total dollar value of a company’s outstanding shares, but it can also be used in other settings too.
In the traditional trading world, the market cap will represent the total dollar value of a coin if this is your currency, but it can now also be applied to cryptocurrency.
Essentially, it is a way of truly determining the current value of a form of currency based on the way it is performing in the global market. This is why it applies to all forms of trading and can be used for all currencies, even digital ones.
For cryptocurrency market capitalization, the total value of the coin is multiplied by the total number of that coin in circulation to work out the true value.
How To Determine The Market Cap of Crypto?
There are several methods that people use to determine the market cap of cryptocurrencies.
Depending on which method you use, there may be a different understanding of what the market cap is and how it can affect your investment.
To determine the market cap, there are several methods available:
- Circulating supply
- Fully diluted supply
- Max supply
Each method relies on a slightly different amount of cryptocurrency based on what is in circulation as well as what is yet mined, which is why the total metrics can vary.
As well as this, another issue that people come across when trying to work out the value of a cryptocurrency is thinking the fiat market value and the market cap are the same thing. This is not the case, although all cryptocurrencies do have both.
The fiat market value of a coin fluctuates depending on various factors, but the total market cap of a coin simply shows the price of that coin multiplied by other coins in circulation.
Both of these are important figures to be aware of in the crypto trading world.