Market Capitalization – What Is It?

What is Market Capitalization and how it is used in Crypto Market?

What is Market Capitalization?

Market Capitalization or Market Cap is a metric that measures the value of a cryptocurrency.

It is often used by both fundamental and technical analysts to offer a clear indicator of an asset’s acquired value.

Additionally, many investors use a coin’s market cap to estimate its potential growth and calculate a risk-reward ratio.

Market capitalization=Current Price (per unit) X Total Supply (or the number of circulating coins)

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Market Capitalization in the Case of Cryptocurrencies

In Crypto, the market cap is calculated by multiplying the total number of coins that have been mined by the price of a single coin at any given time.

It’s important to note that even Bitcoin, crypto’s biggest market cap, still sees volatility.

Conversely, digital currencies with smaller market caps are more susceptible to the whims of the market. And then, see huge gains or dramatic losses in their wake.

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Market Capitalization – How it can vary?

It is necessary to note that while the market cap may provide insights about a project’s performance and size, it does not equal money inflow.

It is a common mistake made by investors as the calculation of market capitalization depends on price.

However, even a minor variation in price can significantly alter the market cap.

Difference between Market Value and Market Cap – Market Capitalization

Market capitalization is calculated essentially, by multiplying the number of shares outstanding by the current price of a single share. Market value is assessed using numerous metrics and multiples including price-to-earnings.

Don’t get confused just because they sound alike. People often use the two interchangeably, referring to a company’s market cap as its “market cap” “stock market value” or “value in the marketplace”.

But when they do, they are referring to a specific type of market value.

Market capitalization is essentially a synonym for the market value of equity.

Further, Market capitalization and market value are both simple calculations exclusively based on corporate assets.

Neither of these metrics should be confused with the book value of a company, which is its net worth.

The book value is calculated by subtracting non-monetary assets and liabilities or debts from a company’s total assets.

A book value may be lower or higher than its market value or market capitalization.

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What is the current total Crypto Market Cap – Market Capitalization

The total crypto market cap is relatively small, standing at about $890 billion down from its peak of almost $3 trillion. This puts crypto at roughly 2% of the US equity market at about $41 trillion.

What Are the Altcoin Market Caps?

There are a number of Bitcoin alternatives, referred to as “altcoins”, that have developed huge followings. The altcoin market cap is the same idea as Bitcoin, except for altcoins. Here’s a look at the top five at the time of this writing:

• Ethereum is second at $19 billion (110.5m circulating supply X $172/ETH)
• Ripple is third at $8b (44b circulating supply X $0.19/XRP)
• Tether is fourth at $6.4 b (6.4b circulating supply X $1/USDT)
• Bitcoin Cash is fifth at $4.3b (18.3b circulating supply X $234/BCH)

Categories

Large-cap

These coins make the safest investments due to their large market capitalization. Which necessarily means that billions are already invested.

Mid-cap

We can categorize cryptocurrencies with a market cap of below $1Bn here. These coins are still popular and reliable, but they are riskier than large-cap coins.

Small-cap

These assets have a market cap of below $10M and are the riskiest assets. They have a high failure percentage and are not yet well-established projects.

Big market movers (whales) typically control the supply and price of cheaper coins.

Importance of a Market Cap?

Market cap demonstrates the size of a company. It is an important tool for analytics, especially when comparing companies.

Market cap is often used as a baseline for analysis as all other financial metrics must be viewed through this lens.

For example, a company could have had twice as much revenue as any other company in the industry.

However, if the company’s market cap is four times as large, the argument could be made that company is underperforming.

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Performance Metrics that use Market Cap

There are a number of popular valuation ratios that include market capitalization that investors should look at when considering buying a stock.

a(P/E) ratio: – It is calculated by dividing the market cap by 12-month net income and can reference trailing earnings or projected future earnings.

b. free-cash-flow ratio: – It is calculated by dividing the market cap by 12-month free cash flow.

Basically, derived from subtracting capital expenses from cash flow from operations can also use historical or projected returns.

c(P/B) ratio: – Calculated by dividing the market cap by the company’s total shareholder equity.

d.Enterprise-value-to-EBITDA (earnings before interest, taxes, depreciation, and amortization ).

It functions similarly to the price-to-earnings ratio; enterprise value is calculated by totaling the market value of common and preferred equity, minority interest, and net debt. EBITDA measures operational returns in the short term.

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Conclusion

Basically, developing an understanding of market cap categorization can assist an investor in creating a diversified portfolio.

It is a valuable tool for an investor who is evaluating potential investments. Essentially, market capitalization is a quick and easy method for estimating a company’s value.

Basically by extrapolating what the market thinks it is worth for publicly traded companies.

Balancing risk is an important part of investing and it is important to know how to limit one’s losses in a volatile market.

Investors use this figure to determine a company’s size, as opposed to using sales or total asset figures.

In an acquisition, the market cap is used to determine whether a takeover candidate represents a good value or not to the acquirer.

As with many things in crypto, while the crypto market cap does not indicate some level of legitimacy, it is only one measure to analyze the prospects.

There is no singular indicator, technique, or method that can predict the market’s direction.

So, conducting thorough research into digital assets is the wiser course.

FAQs

Should the Crypto Market Cap be high or low?

Market cap is a primary measure of total value. When altcoins have a high market cap, they are usually seen as more reliable based on the assumption that more people have invested in that cryptocurrency.

And when they have a low market cap they are seen as speculative, new, and less reliable cryptos.

Is market Cap a good indicator?

Market Cap is a metric that makes it easier to understand a company’s financial scope. It allows investors to size up a company based on how valuable the public perceives it to be. The higher the value, the “bigger” the company.

What does market cap mean?

It refers to the total value of all a company’s shares of stock. Can be calculated by multiplying the price of a stock by its total number of outstanding shares. For example, a company with 20 million shares selling at $50 a share would have a market cap of $1 billion.

Will it be good if the market cap is high in Crypto?

Large-cap cryptos are generally considered to be safe crypto investments. These are companies with a market cap of more than $10 billion investing in coins with a large market cap is usually a conservative strategy.

Who has the largest Market Cap?

Apple is the largest company in the world with a market cap of $2.54 trillion. It’s followed by Microsoft etc.

Is a low market cap good for Crypto?

Crypto with a low market cap oftentimes has upside potential. The project may be new or still in the presale phase. As such, the best low-cap crypto still has room to gain momentum in the market. They might increase in price as more investors take notice of the project.