Cryptocurrency Market Capitalization Explained
When researching cryptocurrencies, you will come across an important statistic called market capitalization. This term is often misunderstood by the general public. When you understand the basics of market capitalization, you will have the upper hand when determining potential cryptocurrencies to invest in.
Here you'll find the answer to what is cryptocurrency market capitalization in easy to understand terms, so that you can benefit from the rapidly growing cryptocurrency market. This is a must read and must know concept for anyone learning about cryptocurrency, and better yet, investing in cryptocurrency.
The Importance of Market Capitalization
Market capitalization is a term most used in business and investing. It refers to the total value of the entire market of a specific investment industry, sector or particular company.
We are all familiar with Facebook, the worlds largest social media platform. Currently, Facebook has a total market capitalization of $611.41 billion dollars ($611,410,000,000.00) as of this writing. This is the total value of the company. Its value is determined by its total number of shares of stock, multiplied by its current stock price.
The higher the market capitalization is, the more valuable the company as a whole is.
Why is this important to know? When determining whether to invest in a company, understanding its total value is a vital statistic that I think we all agree is worth knowing. This information will aid us in determining if it's overvalued or undervalued, and thus influence our purchasing decision.
Market Capitalization & Cryptocurrency
When it comes to cryptocurrency, the concept is the exact same. Market capitalization is simply the total overall value of the respective cryptocurrency. This is determined by the total number of cryptocurrency coins in circulation multiplied by the value per cryptocurrency coin.
What determines the value of each cryptocurrency coin
The value of each individual cryptocurrency coin is totally dependent on the law of supply and demand. The majority of cryptocurrencies available have a total number of coins that will be allowed to be in circulation. If said cryptocurrency company provides a valuable service that is needed in the market, more people will want to adopt said coin (demand goes up).
If more people want access to that particular cryptocurrency coin, given there are only “x” amount available, the price per coin will naturally increase. Each coin will go to the highest bidder, determining the value per cryptocurrency coin.
This same concept is used to determine the share price of a given stock in the stock market.
Just like the stock market, the value of cryptocurrency coins fluctuate from day to day (although the volatility of cryptocurrency is much higher than that of the stock market, keep in mind). This is because the number of people wanting to purchase the said cryptocurrency changes on a daily basis, resulting in the price of the coin fluctuating.
Cryptocurrency Market Cap & Investment Decisions
This knowledge is great and all, but how does it help us? Great question!
There are approximately 1,656 different cryptocurrencies available today (as of this writing), and that number is expected to continue to rise. How is one to determine which cryptocurrencies are worth investing in?
Among many other factors, market capitalization is a valuable indicator in making this decision.
If a new cryptocurrency has a relatively low market capitalization, what does this tell us? Here are two main considerations one could take from a low market capitalization:
- It's a newer company and has not yet been widely accepted by the market
- It's company does not offer a product/service that is useful, thus no one is investing
Would either of those two points of information be helpful to know when deciding whether to invest or not? Absolutely!
Take the same example but of a company with a high market capitalization and two main considerations you could take are:
- It's a popular company that offers a useful product/service, thus its demand is high resulting in a higher price
- It's value is high due to a market trend, which means more research is necessary to determine if it's current price is accurate or in a “bubble”
These are only a few examples of conclusions one could make from knowing what the market capitalization of a cryptocurrency is. This data, combined with many other pieces of information such as current market price, maximum number of coins, number of coins in circulation, age of the company, company leadership, etc.
Where to get cryptocurrency market capitalization info
There are a number of news websites, cryptocurrency exchanges and blogs that post information about current market capitalization of particular cryptocurrencies. Here are a list of the top resources that offer the most helpful information:
CryptoCompare offers information on nearly every available cryptocurrency, including market capitalization. They have updated prices that are sourced from major cryptocurrency exchanges, along with helpful information about the basic vision of each cryptocurrency company.
Perhaps their most useful feature is their portfolio section. You can create a manual cryptocurrency portfolio (based on your real investments or a hypothetical scenario) to see how your investments perform from overall among your cryptocurrency portfolio.
CoinMarketCap is very similar to CryptoCompare in that it provides basic market statistics of each individual cryptocurrency. It's main focus is providing data, and not so much to providing detailed information about each coin. For quick stats and basic information on prices, CoinMarketCap is the specialist.
CoinCheckup is the most detailed source I have found to date when it comes to researching everything you need to know about a particular cryptocurrency. Like the former listed resources, you can get information on basic price information, market capitalization and volume, as well as in depth details on the company's vision, its founders and an overall strength rating.
Understanding the basics of Cryptocurrency
When all is said and done, there is a lot of information to learn about when it comes to cryptocurrency. This is, in my opinion, the reason for the steady growth (or lack thereof) and adoption of cryptocurrency and blockchain technology.
Educating the public on how cryptocurrency works can take time, and once understood, will be the future of technology, the future of the internet, and the future of digital currency.
That's why we've created a one stop shop for everything you need to know about cryptocurrency. Follow the link, or click the large banner below to access the guide.