What is market cap?
Market cap, or market capitalization, is the market value of a specific cryptocurrency. In other words, it shows how much a crypto asset or the company behind it is worth.
Fully Diluted Valuation (FDV) refers to the market capitalization of a cryptocurrency if its maximum token supply is reached. FDV shows how much a crypto asset or the company behind it is worth considering all tokens are released onto the market, rather than considering only its circulating tokens.
Market cap or FDV can be used to evaluate and compare the value of one crypto asset to another. It is the simplest and most basic way to check whether a crypto token is undervalued, overvalued, or correctly valued.
If all tokens of a cryptocurrency are released and no tokens are burned (removed from circulation), its market cap will be equal to its FDV.
How to calculate market cap
Market cap is calculated by multiplying the number of tokens in circulation by the token’s current price, while Fully Diluted Valuation is calculated by multiplying the maximum number of tokens by the token’s current price.
Let’s take Bitcoin (BTC) as an example. At the time of writing:
- The price of Bitcoin (BTC): $21,339.
- The circulating supply of Bitcoin (BTC): 19,095,918.
- The maximum supply of Bitcoin (BTC): 21,000,000.
By using the formula given above, we can calculate:
- The market cap of Bitcoin (BTC) = $21,339 * 19,095,918 = $407,505,037,816.
- The FDV of Bitcoin (BTC) = $21,339 * 21,000,000 = $448,137,963,000.
Why does market cap matter?
By definition, market cap is what determines the current market value of a cryptocurrency, not its price. You can evaluate the value of a crypto asset by looking at its market cap rather than its price since the number of tokens between each cryptocurrency varies.
For instance, the price of a Dogecoin (DOGE) token is currently $0.064302, while that of a Polkadot (DOT) token is currently $7.12. However, there are approximately 132.6B DOGE tokens in circulation, making its market cap $8.5B, while there are only 1.1B DOT tokens, meaning Polkadot’s market cap is only $8B.
It can be easily seen that if we look at the price, DOGE is much cheaper than DOT. Nevertheless, this does not necessarily mean the value of Dogecoin is lower than Polkadot. In fact, regarding market cap, Dogecoin is more valuable than Polkadot.
As mentioned above, each cryptocurrency has a different set of circulating token supply and maximum token supply. Due to this, investors cannot evaluate a cryptocurrency based on its price and have to rely on its market cap. That explains why market cap is such a useful tool for any crypto investor.
On the other hand, Fully Diluted Valuation (FDV) can also be used similarly to market cap. This really depends on the investor’s choice: some prefer to calculate the valuation of a cryptocurrency using its market cap (current value), while others favour FDV (possible future value).
Using FDV will completely disregard the tokenomics aspect for a more comprehensive overview since tokenomics can affect the token’s price.
Sizes of market cap
Based on market cap, a cryptocurrency can be put into three main categories: Large-cap, mid-cap, and small-cap (low-cap).
The definition of large-cap, mid-cap, and small-cap, however, varies among investors. In this article, Coin98 Insights will define them in a way that we think is the most appropriate.
Large-cap cryptocurrencies are the ones that have a market cap of over $1B. At the moment, there are 52 large-cap cryptocurrencies, with Bitcoin (BTC) on top with a market cap of $408B.
Large-cap cryptocurrencies tend to be more stable in price and have higher liquidity but possess less possible growth.
Mid-cap cryptocurrencies are the ones that have a market cap from $100M to $1B. Most invested cryptocurrencies fall into this category as they can produce great price growth with medium risk. The liquidity of these cryptocurrencies is also enough for most types of investors and traders.
Small-cap and low/cap
Small-cap or low-cap cryptocurrencies are the ones that have a market cap of below $100M. These are often the newcomers to the space and are only developing in the early stages. Therefore, investing in such tokens can return exponential profits.
Nevertheless, the risk of a downturn also gets much higher: such cryptocurrencies can die out in no time. At the same time, the liquidity of these cryptocurrencies is also extremely limited, making it difficult for them to be traded. Price slippage can occur easily.
Most fraudulent cryptocurrencies are in this category, so you should consider carefully before speculating or investing in this type of crypto asset.
Top market cap cryptos
At the time of writing, the top 10 cryptocurrencies with the highest market cap are Bitcoin (BTC), Ethereum (ETH), Tether (USDT), USD Coin (USDC), BNB (BNB), Binance USD (BUSD),
XRP (XRP), Cardano (ADA), Solana (SOL), and Dogecoin (DOGE).
You can use Coingecko or Coinmarketcap to check such statistics.
Learn more: What is CoinMarketCap?
FAQs about market cap
Is it good to have a big market cap?
The bigger the market cap, the more valuable a cryptocurrency is. To reach a large market cap or become a large-cap cryptocurrency, one has to prove various things: worthiness, applicability, prestige,… Therefore, having a big market cap is a great achievement for a crypto asset.
Do NFTs have a market cap?
Yes. The market cap of an NFT can be calculated by multiplying the floor price of the NFT’s collection by the number of NFTs within that collection.
What if the market cap is zero?
If the market cap is zero, there are three possible cases: the token price becomes 0 (the project no longer operates or becomes worthless), the project migrated to a new token (the old token becomes irrelevant), or the project has not released any tokens.
Is market cap the same as equity value?
Equity value in the stock market is the same as token price in the crypto market. As explained above, market cap is totally different from, although closely related to, token price. As a result, market cap is also not the same as equity value.
Market cap, or market capitalization, is the market value of a specific cryptocurrency. In other words, it shows how much a crypto asset or the company behind it is worth. Market cap is calculated by multiplying the number of tokens in circulation by the token’s current price.
Based on market cap, a cryptocurrency can be put into three main categories: Large-cap, mid-cap, and small-cap (low-cap). Each one of them has a different characteristic. Market cap is an incredibly useful tool for crypto investors as it helps them correctly evaluate the value of a cryptocurrency in a simple way.
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