Market cap, an acronym for “market capitalization,” tells us everything we need to know about a company or an asset’s value and performance. That’s crucial for any investor, especially in the crypto space. So, before taking the plunge and investing, always do your due diligence and find out a coin’s market cap.
But how exactly can you work out the market cap of a coin? Read on to find out more.
The total value of a cryptocurrency is described as its “market cap,” an acronym for “market capitalization’ and you can calculate a coin’s worth by multiplying the current price of a cryptocurrency with the total number of coins in circulation.
Let’s say, for example, that one million cryptocurrency coins are in circulation, and their price is $100 per coin. That means the total value of all the coins in circulation is $100,000,000, equalling a ($100 million) market cap. Keep in mind, though, market values fluctuate because of the volatile nature of the crypto space.
How Does Crypto Market Cap Help Investors?
The total market capitalization of cryptocurrencies makes it easier for investors to determine the market’s fluctuation. When a coin goes up in price, more investors are likely to buy more coins. When the market capitalization of a cryptocurrency declines, investors are more likely to sell or abandon the asset. Never underestimate the power of fear and greed in the market!
Calculating Crypto Market Cap
Cryptocurrency market cap = circulating supply x unit price
Multiplying the current token or coin price by the total number of coins in circulation will help you understand market capitalization. Let’s take a quick look at an example below.
Circulating Supply: Total number of coins in the market
Unit Price: The price at which one unit of the asset is sold
As of November 2022, a single Bitcoin costs over $20,000, and there are over 19 million in circulation. So, multiply 19 million by $20,000 to get the current Bitcoin market size, estimated at around $380 billion.
Types of Crypto Market Cap
Large-cap cryptocurrencies are more liquid than their smaller-cap counterparts, making them more appealing to investors. This implies that investors will have an opportunity to find the best crypto to buy using any digital asset trading platform. Bitcoin and Ethereum are examples of cryptocurrencies in this category.
Mid-cap digital currencies are valuations between $1 and $10 billion and are seen as higher-risk investments, although most have performed well over the long term. Including mid-cap currencies in your portfolio and spreading your risk might help offset any portfolio losses due to market fluctuations.
Small-cap cryptocurrencies are digital coins and tokens with a market valuation of $100 million to $1 billion. Although these small-cap coins can see brief growth phases, cryptocurrencies in this class are often regarded as risky investments because of their extreme volatility. One currency that fits these criteria is Dogecoin.
The risks associated with microcap assets are greater than those of small-cap currencies. Common examples of coins fitting this description have a market capitalization of less than $50 million and are usually introduced by startups or smaller unknown companies.
Top 5 Cryptocurrencies Based on their Market Cap
Bitcoin is considered one of the best investments, and many see its current price as a great buying opportunity. It pioneered the concept of blockchain-based, decentralized digital money. Bitcoin was created as an electronic payment system, but there are numerous other cryptocurrencies that facilitate transactions more quickly and at a lower cost. Now more than ever, it is considered a valuable investment and is sometimes compared to digital gold.
Bitcoin’s transaction validation mechanism, known as “mining,” is also used to create new coins. Only 21,000,000 Bitcoins will ever be created. Once that cap is reached, no further Bitcoin will be mined.
Ethereum is a blockchain system that has been developing since 2013 and was released in 2015. It is noteworthy because it was the first blockchain to support smart contracts. When specific criteria are satisfied, smart contracts, which are computer programs stored on a blockchain, automatically carry out the terms of the contract.
Ethereum is a blockchain platform that developers use due to its capacity to execute smart contracts. It’s used to create blockchain-based applications, known as “decentralized apps” (dApps). More determined initiatives, like DeFi (decentralized finance) systems, will likely use these dApps to replace conventional banks.
USD Coin is a dollar-backed stablecoin. It has been gaining ground in the stablecoin market, and one of its advantages is that it is seen as more trustworthy than others. As opposed to the others, the USD Coin receives monthly attestations from Grant Thornton LLP, a reputable accounting company, verifying its reserves. Being a “stored value instrument,” it is also subject to a higher level of regulation.
Tether is one of the best stablecoins pegged to a specific asset. Tether’s asset of choice is the US dollar, and the company’s stated goal is to keep the USDT token’s exchange rate at $1.00 per USDT at all times. Tether’s value is generally $1, although fluctuations in the market could cause its price to go up or down from that level. Tether’s reserves and legality have been questioned, contributing to the cryptocurrency’s contentious reputation. And yet, despite its not-so-great image, it is by far the most traded cryptocurrency and the biggest stablecoin.
Binance Coin, abbreviated as BNB, is the cryptocurrency used only on the Binance exchange, now ranked as one of the best cryptocurrency markets in the world. It’s an essential part of the Binance ecosystem and, as such, is classified as a utility token. Clients of Binance who want to pay using BNB, for instance, are eligible for special trading fee savings. Binance’s BNB Chain, a blockchain network, now accepts BNB for transaction fees.
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