What Is Cryptocurrency Market Cap? Why Is It Important?

crypto exchange India

Market cap refers to the overall evaluation of cryptocurrency in terms of the supply of coins. Overall, cryptocurrencies are ranked in terms of their market cap on the crypto exchange India, and this measure can also be seen among stocks and financial assets. Market cap is more meaningful than the price, as it holds vital information allowing traders and investors to gain proper insight into the asset’s value. 

What is Market Cap?

Market cap or market capitalization is the circulating supply of a cryptocurrency and its current price. It is an essential metric in cryptocurrency, which ranks these digital assets per their relative sizes. 

Market Cap = Circulating Supply x Current Currency Price.

Bitcoin’s Market Cap

Bitcoin ranks highest in cryptocurrency India in terms of its market cap, which has recently hit the $330 billion mark following its price surge to $17205. Its current market value exceeds whereas Ethereum stands second with a market cap of $160 billion. Bitcoin’s current market cap surpasses some big-shot companies in the United States. It recently overtook major publicly-listed companies like PayPal, Verizon, Salesforce, Adobe, Netflix, Disney, Bank of America, and Coca-Cola. 

Nevertheless, it still has a long way to go before catching up on JPMorgan Chase, Mastercard, and Visa. As per Toroso Investments’ portfolio manager, Dan Weiskopf – any Bitcoin investment between $10 billion – $20 billion would be more profitable than Apple’s plan of stock buybacks. Often investors draw comparisons between Bitcoin and gold. Such comparisons have received greater impetus in modern times of economic uncertainty.

Comparison Between Price & Market Cap For Calculating Value

Price is uni-dimensional and offers information on the trading value of each coin. However, it doesn’t reflect an asset’s actual value or scarcity. Whether a commodity or service is available greatly determines its demand and supply equation. Rare products are valued more compared to the ones in abundant supply. Market cap considers availability, which offers more profound insight into the digital currency’s value while you buy cryptocurrency in India

Suppose two cryptocurrencies are worth $1. One has a circulating supply of 1 million, whereas the other has a circulating supply of 1 billion. The first currency will have a market cap of $1 million ($1 x 1,000,000), and the second one will have a market cap of $1 billion ($1 x 1,000,000,000). This example proves that you must look at the price to understand the story.

Drawbacks Of Market Cap

Market cap is an excellent metric for ranking cryptos. However, it suffers from certain loopholes which are a direct result of the inherent imperfections in circulating supplies as mentioned below:

You need help understanding the cumulative crypto investment from its market cap. It shows the circulating supply’s total value at its current market price. 

The market cap changes drastically for illiquid cryptocurrencies, even with a small number of trades. It could bring a spike in the price of the crypto and, ultimately, its market cap. 

As more coins are mined, their supply increases in the market. It improves its level of supply.

Why is the Market Cap So Important?

Price is one way to measure a cryptocurrency’s value. Investors use the market cap to compare value across cryptocurrencies. Marketcap indicates the potential growth of crypto and whether it is secure to buy/sell and trade compared to other cryptos.

For example, let’s compare the market cap of two cryptocurrencies. 

So if Crypto A has 300,000 coins in circulation, and the coin worth is $1, its market cap is $300,000. 

And if Crypto B has 100,000 coins in circulation and the coin worth $2, its market capitalization is $200,000.

Even though the individual coin price of Crypto B is higher than Crypto A, the overall value of crypto B is twice that of crypto A.

Therefore, it is essential to note that many crypto exchange market caps can swing dramatically due to their volatility.

What Can You Do With the Market Cap?

The market cap helps you make comparisons with cryptocurrency values so you can make more informed investment decisions on the crypto app India.

Cryptocurrencies classify into three categories based on the market cap.

1. Large-Cap Cryptocurrencies

These include the top 5 cryptocurrency in India, like Bitcoin and Ethereum, which have a market cap of more than $10 billion. Investors consider them lower-risk investments because they have a verified track record of growth and often have higher liquidity, which means they can withstand a higher volume of people cashing out without the price being dramatically impacted.

2. Mid-Cap Cryptocurrencies

These have market caps between $1 billion and $10 billion. Mid-cap is generally considered to have a higher risk. 

3. SmallCap Cryptocurrencies 

These have a market cap of less than $1 billion. These are more prone to dramatic swings based on market sentiment. 

Final Words

The market cap clearly shows the level of investment risk involved in a particular crypto. A high or low market cap reveals whether a coin is resistant or vulnerable to price volatility. Coins with smaller market caps are more prone to price fluctuations whenever a piece of big news hits the market. Holders of small-cap crypto are at heightened risk of being crushed by big traders whenever they conspire to sell simultaneously, causing the token price to crash. It differs from coins with more oversized market caps like Bitcoin and Ethereum. While sudden alterations in a coin’s circulating supply can cause the market cap to change drastically, it is still considered the best metric for ranking coins and comparing their overall value.

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