What Does Market Cap Mean in Cryptocurrency?
Yesterday we talked about what “trading volume” means in reference to cryptocurrency. Today we’re going to talk about another potentially confusing financial term: market cap.
After all, if you’re going to make choices of which virtual currency to buy (or sell) and when, it’s good to do some research. (Of course, we do recommend asking your trusted financial advisor for help before taking the plunge.)
Market Cap Calculation
Market cap might sound like something with a hard limit on it, but it’s actually short for “market capitalization.” The market capitalization is a number that indicates the current market value of a currency.
Market cap is calculated using this formula:
Market PRICE x NUMBER of coins in circulation = Market CAP
For example, if bitcoin is priced at $10,000 USD and there are 19,500,000 bitcoins in circulation, the current market cap of bitcoin is $195 billion (10,000 x 19,500,000).
Note that the number of bitcoins in circulation is going to change every 10 minutes or so, as a new block is verified on the blockchain and a 6.25 BTC reward is issued — the current award as of May 2020. This will be reduced to 3.125 at the next halvening, expected to be in 2024.
What Does it Mean?
So what’s the point of this number? Market cap determines the relative value of a digital currency, and lets us compare it to other cryptocurrencies.
The same term is used in traditional finances, and refers to the total value of a company. It’s calculated by multiplying the number of shares by the share price. So if Company ABC has 1,000 shares issued and they’re worth $250 per share, the market capitalization of Company ABC is $250,000.
So in a nutshell, market cap tells us the entire value of something as a whole (that “something” being a currency or a company).
Further breaking it down, market cap in the crypto world is divided into three size categories: large-cap, mid-cap and small-cap.
Large-cap cryptocurrences are well-established and have a market cap of more than $10 billion. This would include Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP). They’re widely considered to be potentially safer investments than mid-cap or small-cap coins because they’re usually less volatile (but keep in mind that in the crypto world, anything goes).
Mid-cap cryptocurrencies have market caps between $1 billion and $10 billion, and are likely riskier than large-cap currencies. But they also may have more growth potential because they’re still in the earlier stages of becoming established. Bitcoin Cash (BCH) and Litecoin (LTC) fit in this category.
Small-cap cryptocurrencies have a market cap under $1 billion, and present the highest risk because there’s a larger chance of failure with these new coins. But … if they take off, the payout could be huge.
You really need to measure risk vs. reward here. A highly volatile currency could pay off huge … or you could just as easily lose big.
Once you make a decision to buy (or sell) a given cryptocurrency, keep in mind that you can trade 30 different virtual currencies with cash at any Coin Cloud digital currency machine. Unlike any other national operator, all 1,000+ machines are two-way, giving you the option to buy or sell. You can find the nearest Coin Cloud DCM here.
Disclaimer: The information and views supplied by Coin Cloud are for educational and entertainment purposes only. We are not financial advisors, so please do your research and consult with a trusted financial specialist before investing your money.
What is Coin Cloud?
Coin Cloud is a digital currency machine (DCM) company founded in 2014 in Las Vegas, Nevada. With over 1,400 locations nationwide, Coin Cloud is the world’s largest and fastest-growing network of two-way DCMs, a more advanced version of the Bitcoin ATM. Over 60% of all two-way bitcoin machines in the US are Coin Cloud DCMs, empowering you to quickly and easily buy and sell 30+ virtual currency options with cash. You can find your nearest Coin Cloud DCM here.