What is a Crypto Market Cap?
A coin's market cap can be a helpful tool when evaluating the value of a network. But what does it mean, and what makes it more useful than price? In this guide we cover all this and more, including some of the pitfalls of relying solely on market cap for information, and not your own research!
Source for the article on the percentage of lost Bitcoins: http://fortune.com/2017/11/25/lost-bitcoins/
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Market cap of a coin is calculated using this formula:Market cap = Total Circulating Supply * Price of each coin.In other words, it is a product of the coin’s circulating supply and the price of each coin. Let’s take an example:If “A Coin” has 300,000 coins in circulation and each coin is worth $2, the A Coin’s market cap will be 300,000*2 = $600,000.Similarly, if “B Coin” is worth $4 and has 50,000 coins in circulation, its market cap will be 50,000*4 = $200,000.So, even if the individual price of B Coin is more than that of A Coin, the overall value of A Coin is much more than B Coin.
This is why market cap is a better indicator of a company’s worth than the price of its individual tokens.We can see a real-life example of this as well. If you see the list above from coinmarketcap, you will notice that EOS and Bitcoin Cash are 4th and 5th respectively.The interesting thing is, both of them have pretty much the same market cap. EOS has the lead with “just” $5 million. But, if you take a closer look, you will notice that Bitcoin Cash’s value ($123.72) is nearly 50 times more than EOS’s ($2.40).
The reason why EOS slightly edges Bitcoin Cash because it has 50 times more circulating supply.Large-Cap vs Mid-Cap vs Small-CapSo, what is the point of ranking by market cap? What are we learning from this metric? It shows us how much risk we are dealing with when we choose to invest in a cryptocurrency.
Cryptocurrencies can be broadly classified into “large-cap”, “mid-cap” and “small-cap”. Large-cap cryptocurrencies have a big market cap and as such are safe investments to make. Companies with more than $10 billion market cap are classified large-cap companies. Going by that estimate, as of writing, only Bitcoin, Ripple, and Ethereum classify as large-cap cryptos.Mid-cap cryptocurrencies have a smaller market cap but more risk than large-cap cryptos. Cryptos with market caps between $1 billion and $10 billion market cap are mid-cap. Small-cap cryptocurrencies have the smallest market cap and the highest risk because the chances of failure are much higher. Companies with market cap below $1 billion are small-cap.