Cryptocurrency is a digital currency created by users and stored on the blockchain or public ledger. Blockchain technology relies on a network of computers that constantly verify each other’s work, meaning no central authority or third party is involved in transactions. Instead, it’s decentralized—many computers confirm each other’s work instead of just one set of individuals controlling all the information (like with banks). This means that any government or bank does not manage cryptocurrency; it’s decentralized across people worldwide who agree to use its technology to verify transactions.
Cryptocurrency markets are volatile because they’re based solely on supply and demand—the more people who want to buy something right now at this price point, the higher its value becomes compared with other cryptocurrencies’ values; conversely, if fewer people want to buy something right now at this price point, then its value decreases relative to other cryptocurrencies.
What Is Market Capitalization?
Market capitalization is the total cryptocurrency value in the market. It’s calculated by multiplying the current price of a single unit in question by its circulating supply.
So what does that mean?
Market capitalization can be thought of as how much money invested in cryptocurrency would be needed to buy every single coin on the market today. Let’s look at some examples:
- If there are 1 million coins and you could buy them all for $1 each, that would give you a market cap of $1 million. This is called “current price method” valuation.
- If there are 10 million coins and you could only buy them for $5 each, your market cap would still be worth just under $50 million ($5 x 10M). This is called the “book value method” valuation because it considers how much money people have spent buying these tokens from exchanges over time (the book value).
How to Calculate Market Cap
To calculate a cryptocurrency’s market cap, you need to know the number of tokens in circulation and their price. Take the total supply of coins and multiply it by the current cryptocurrency price. Let’s consider Litecoin, for example. Litecoin’s current market supply is 70,266,069 coins, and its price value is $59.94. Hence, its current market capitalization is over $4.2 billion.
The Market Cap of a Single Cryptocurrency
Market capitalization is the total value of all coins in circulation multiplied by the price per coin. In other words, it’s a way to measure the size of a cryptocurrency market.
Market cap can be used to compare the relative size of different cryptocurrencies. For example, suppose one cryptocurrency has a total supply worth $1 billion, and another has a total supply worth $10 million. We know that the second currency has 10 times as many coins available for trading (and thus has less liquidity). The market cap gives us an idea of how much money could potentially flow into each coin based on its number of coins and their price – which ultimately means how many dollars you’d need to invest in owning 1% or 5%, or 25%.
How to Measure Total Cryptocurrency Market Cap
The total market cap of all cryptocurrencies is the sum of the market caps of all cryptocurrencies. It’s a way to measure the overall value of cryptocurrencies available on exchanges and online trading platforms.
This calculation is simple: take the total number of coins available in the market and calculate the market cap of individual coins. Sum up the caps of all the coins to get the entire cryptocurrency market capitalization. The total crypto market cap hit the $3 trillion mark for the first time in November 2021. But since then, it has halved to the current market cap of around $1.5 trillion.
Market Capitalization Is a Way of Measuring the Value of a Cryptocurrency
Market capitalization is one of the most common methods used to gauge a cryptocurrency’s size, but it’s also one of the most misunderstood—and misused.
Cryptocurrency market capitalization is essentially a way to measure how much money has been invested in a particular coin. It works by multiplying the total number of coins that their current value on exchanges has minted. To put it another way: You take all the coins that are currently being bought and sold, add up their price tags (measured in dollars), and then divide that by the total number of cash available for purchase. That number represents each coin’s market cap—a figure that can be used to compare different cryptocurrencies and determine their relative value within a given period.
What’s the Difference Between Stock Market and Crypto Market Capitalization?
Even the traditional stock market has a capitalization. Hence, traders often believe that both the market capitalizations are similar and are calculated similarly. However, that’s not the case.
Capitalization refers to the total value of a company’s shares in the stock market. Knowing the cap helps the traders understand the risks associated with a particular asset. Hence, they can use the information to create a balanced portfolio. However, with cryptocurrencies, capitalization only refers to the current total value, which can change drastically.
Since crypto coins are available in millions, a price change of a few dollars can change the capitalization to millions and even billions of dollars. Hence, traders cannot rely on the cap value to balance their portfolios. But knowing the value is still essential as traders can use it to understand the demand of a particular coin, which is one of the most critical factors leading to a crypto’s value.
Will the Global Crypto Market Cap Reach $10 Trillion?
Yes, of course, there’s no denying that the crypto market is crashing currently. There’s a strong bear run, leading to the market’s downfall. However, many famous investors still believe that the total crypto market cap can easily surpass the $10 trillion mark. In fact, MicroStrategy’s CEO believes that bitcoin alone can stand at a $100 trillion capitalization in the future.
Cryptocurrencies have become a popular option for people willing to earn quick money through trading. Hence, the total crypto market cap has skyrocketed. Although the current position is not that good, it is believed that the market cap will continue to rise in the future, giving a positive sign to the traders.