What is coin market cap?

by in Crypto 101, Cryptocurrency For Beginners

Market Capitalization

The capitalization of all cryptocurrencies is the total value of all coins at the moment.

It is defined as the product of the number of tokens in circulation by the current price. If 100 coins of a specific currency have been released to the market, and each coin is currently worth $10, then the market cap is $1000. However, this is not an accurate indicator, since the number of all generated coins is taken into account, and not the real turnover on exchanges, as is done concerning securities.

Financial indicators and their ratios are traditionally used to analyze stocks and bonds. When considering shares, such parameters as price-earnings ratio, earnings per share, current liquidity ratio, profit growth, and others are taken into account. On the other hand, cryptocurrency projects do not publish their financial statements. Therefore, the importance of those numerical indicators that are still available to investors is increasing. The market cap parameter allows you to quickly and easily assess the value of a cryptocurrency. Bitcoin capitalization has exceeded $ 130 billion. Ethereum is in second place, with a significant lag. Bitcoin Cash, Ripple, and Litecoin round out the top five.

Comparison of cryptocurrency market capitalization with the largest companies

Just by looking at the market cap metric, you can understand a lot about cryptocurrency. The first and general conclusion: Bitcoin continues to be the chief player in the cryptocurrency market. Its market share is approximately 55%, which is about three times that of its closest competitor, Ethereum. An equally huge gap exists between Bitcoin Cash and Ripple, which comes in at number four. There are still a few cryptocurrencies with good value. Only 13 coins boast a market cap of over $ 1 billion. Many, even quite popular so-called. "alternative" coins have a capitalization of no more than $ 20 million. Most of the capital in the cryptocurrency market is placed in Bitcoin and several other large projects.

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Under such conditions, Bitcoin's 130 billion capitalization looks like a huge mass in an airless space. But let's compare this figure with other famous names. JP Morgan, whose CEO - James Dimon - is a public critic of bitcoin, has a capitalization of about $ 324 billion. Facebook's capitalization is about $ 500 billion, and Apple's is $ 811 billion. Thus, the brainchild of Satoshi Nakamoto is still far from global domination.

What affects capitalization

Two chief indicators affect the capitalization of cryptocurrencies - the number of coins issued (emission) and their rate. The emission of many famous coins is growing due to mining since, as users mine new cryptocurrencies, its number gradually increases.

Most of the well-known cryptocurrencies such as Bitcoin, Ethereum, Litecoin, and others can be mined. However, there are also currencies with primary emission (when all coins are immediately released into circulation, for example, the NXT coin). In this case, the total capitalization mainly depends on price and market activity.

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To a greater extent, this indicator is associated with the value of the cryptocurrency. The price of digital money largely depends on demand, and demand, in turn, changes due to several factors: the behavior of large traders (in the past six months, the trusted manager of the bankrupt Mt.Gox trading platform sold BTC for $ 400 million, and analysts found a connection with the fall rate of the first cryptocurrency), regulation by the governments of large states (in early 2018, the market value dropped significantly under pressure from the authorities of South Korea and China), various news related to popular exchanges (listing of new coins or hacker attacks).

What capitalization affects

The size of the total capitalization reduces exchange rate volatility. It is necessary to sell hundreds of millions of dollars worth of BTC to influence its value. It is much easier to do this with small coins, so often unknown cryptocurrencies can rise in price by 80% in a few hours, as happened on March 12, 2018, with the altcoin Storm, when it appeared on the influential exchange Binance.

In 2017, the value of BTC rose 15 times, and Ripple increased 17 times in December alone. Many coins, such as Stellar and Cardano, have grown exponentially at the end of last year, while their total capitalization was significantly lower than that of Bitcoin.

Also, capitalization considerably affects the recognition of the crypto. Coins that are in the top 10 for this indicator are most often mentioned in the media.