Market capitalization, or market cap for short, is the total value of coins created by a cryptocurrency or a company. Initially, this term was used in the stock market to categorize companies by market capitalization: small-, mid-, or large-cap. From the stock market, this concept made its way into the crypto space.
For cryptocurrencies, market cap is of primordial importance, as it is often how investors assess coins and decide whether to add them to their portfolios. On Binance, you can take a look at the top cryptocurrency by market cap. Market capitalization is one of the best ways to gain deeper insights into a cryptocurrency’s popularity. In addition, it helps assess the stability of the crypto projects. This means that the high-cap cryptocurrencies by market cap actually are more stable and less volatile than the others. On the other hand, a digital asset with a smaller market cap can be a riskier investment, as it is more exposed to rapid price fluctuations.
In this article, we will explore market capitalization in more detail. Let’s dive in.
How Is Market Capitalization Calculated?
The market capitalization is calculated by multiplying the circulating supply by the current coin price. Looking only at price or the supply would not offer great insights, which is why market capitalization follows this structure. Cryptocurrencies can experience significant price fluctuations, which is why they are considered volatile assets. These price fluctuations don’t offer the best insights into the top cryptocurrencies, which is why the market cap provides a broader perspective. This is why experienced investors look at this indicator and use it to compare and assess crypto coins.
Let’s look at some examples to help you better understand how market capitalization is calculated.
- Example 1: A cryptocurrency is worth $2, and it has 100,000 coins in circulation. The market capitalization is $200,000
- Example 2: A cryptocurrency is worth $4, and it has only 10,000 coins in circulation. The market capitalization is $40,000.
Some might be tempted to put the cryptocurrency from the second example in the first place and consider it safer, as it has a higher price. But if we look at the market cap, things can be different, since it is much smaller. This makes the first example a more stable investment and benefits from a stronger market presence.
These examples show why market capitalization is important and a valuable tool for making more informed decisions. Investors are considering this approach over comparing only cryptocurrency prices, as it helps them better navigate crypto volatility. Usually, investors prefer digital coins with a larger market capitalization, as they also have greater adoption and offer better opportunities when the market is highly volatile and risky.
Crypto Classification Based On Their Market Cap
Large-Cap Cryptocurrencies
Large-cap cryptocurrencies have market caps exceeding $10 billion. These coins are considered safe investments, as they have established a presence in the crypto market, offer good liquidity, and exhibit lower volatility.
Here they are:
- Bitcoin (BTC): Bitcoin is the first digital currency and remains the largest crypto by market capitalization to this day. Bitcoin was created in 2009 by an individual or group known as Satoshi Nakamoto, whose identity remains unknown. Bitcoin has a capped supply of 21 million coins, and new tokens are issued to the market through a process called mining. In this process, miners solve complex mathematical problems to validate transactions and add new blocks to the blockchain.
- Ethereum (ETH): Ethereum is the second-largest cryptocurrency by market capitalization, having risen to this position by overcoming some of Bitcoin’s shortcomings. Ethereum leverages blockchain technology even further and has introduced additional innovations to this space, such as smart contracts that execute automatically when the terms of the agreement are met.
- Tether (USDT): A stablecoin whose value is pegged to the US dollar. This is why it offers a solution to navigate the volatility that the crypto space is renowned for.
Mid-Cap Cryptocurrencies
Mid-cap crypto has a market cap between $1 billion and $10 billion. They have the potential to appreciate significantly, but they can also be riskier than large-cap cryptocurrencies. Here are some examples of mid-cap cryptocurrencies.
- Bitcoin Cash (BCH): Bitcoin Cash emerged in 2017 from a fork of the main Bitcoin blockchain. The fork was needed to maintain Bitcoin’s usability and scalability.
- Chainlink (LINK): Chainlink is a decentralized oracle network that connects smart contracts across different blockchains to real-world services and data. The native token of this platform is LINK, which allows payments for the platform.
- Polygon (MATIC): Polygon is a scaling solution built on the Ethereum blockchain that enables cheaper, faster transactions, powered by its native token, MATIC.
Small-Cap Cryptocurrencies
Small-cap cryptocurrencies have a market cap of less than $1 billion. This makes the investment option riskier, as it is prone to rapid fluctuations in value. Here are some examples of this kind:
- AQA: AQA is a crypto created on the Solana Blockchain, as part of its Web3 ecosystem. This crypto aims to serve as a bridge between the physical and digital worlds through innovations such as the AQA Digital City.
- Youclout (YCT): is a metaverse blockchain and a crypto asset built on the Cardano blockchain. It has its own goal: connecting influencers, content creators, and their communities.
- GenieSwap (GENIE): GenieSwap is a decentralized finance platform that made its debut in 2023. It allows users to access services like staking, cross-chain swaps, and a project launchpad. The native token of this blockchain is GENIE, which grants access to governance and other activities.
Conclusion
Cryptocurrencies are not the simplest concepts to grasp, so we need something to help us navigate their volatility. In this regard, market capitalization offers a valuable metric that helps investors analyze market trends, compare assets, and better navigate risks.
