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Why should you check the market cap for crypto investment?

by AndrewSmith
marketcap crypto

Bitcoin market cap, as of 2022 September, is around $377.34 billion. Shiba Inu marketcap crypto is around $6.67 billion. Which crypto will you go for? Even if you are just an aspiring crypto investor, you know the scales are high on Bitcoin. Shiba Inu might be a popular name in the current crypto market but when it comes to a comparison with a legacy coin- especially in terms of marketcap crypto– the meme coin will never be the winning pick. Read more at Multibank.io.

So, what exactly does it signify by marketcap crypto? Why is it so crucial while making informed crypto investment decisions?

Market cap in crypto market

Market cap aka market capitalization of a cryptocurrency refers to “total value covering all coins” in the circulating supply. It counts in the cumulative value of the coins that have been minted out already. For example, as of 2022, total volume of BTC in circulation is around 19 million. The total marketcap crypto of BTC in existence (including those yet to be mined) is 21 million. So, based on that number, something like 2 million BTC haven’t been mined yet.

We have already mentioned the current marketcap crypto of BTC. Now, this figure has been calculated based on the 19 million BTC that are in circulation as of 2022. The marketcap crypto BTC mentioned above doesn’t include the remaining 2 million mentioned in the paragraph above. When the remaining coins are minted out, the BTC marketcap crypto will be calculated covering the “2 million” coins as well.

How do you calculate?

So how would you calculate the marketcap crypto of a cryptocurrency?

Well, you will need two important pieces of data here- circulating supply of your chosen crypto and its present market price. To get the marketcap crypto of the coin, you will just need to multiply these two.

Let’s say, the current circulating supply of your chosen coin is X and its present market price is Y.

So, based on our discussion-

Market cap = X multiplied by Y

Not same as market cap of stock market

For those who are new to the crypto scene, they should know that marketcap crypto isn’t the identical twin of market cap of stock market. The only thing that’s the same here is the formula.

In regard to stocks, the market cap refers to a company’s basic equity value- the volume of worth of each share of the firm.

But, it doesn’t work that way with the crypto industry. It’s because the cryptocurrencies are currencies and not company shares.

However, again, the basic essence is the same. Both stock investors and crypto investors check the market cap of a stock and marketcap crypto respectively prior to making an investment decision.

Why does market cap hold significance?

The marketcap crypto is a crucial parameter to check because the number offers a tangible view of the current worth of the specific cryptocurrency. Bitcoin is a legacy coin, the king of Crypto – the coin’s stellar marketcap crypto is a tangible evidence of BTC’s dominance in the current crypto scene.

So, high marketcap crypto stands for high demand for the specific crypto. When you are aiming to make an investment, you will focus on a crypto that commands high demand. The “demand” quotient signifies two main things. One, the coin offers something valuable and hence people want it. The other one is, the coin assures high liquidity. Both these factors are extremely important for landing up with an informed investment and trading decision.

There is no point in putting your hard-earned money in a crypto that is not wanted in a market. Less demand implies lack of buyers- in that case, you might be forced to sell it at a lower price during trading.

Does lower market cap mean no value?

Now, this is where things might get slightly complicated.

In general sense, lower market cap crypto implies the crypto holds almost no value or demand in the market.

But, there is one crucial point to take note of here- the launch time of the coin.

A new coin, no matter how promising it is, will generally show lower marketcap crypto in the first few months of its launch. Major reason could be that the market is yet to be aware of the coin and its revolutionary use case. So, you cannot always judge the actual worth of a crypto based on its present marketcap crypto. For fair evaluation, if a coin is new, please give it some time to bloom. If the coin fails to show a considerable improvement in its marketcap crypto even after 2 years- even after an extensive promotional campaign- then you might lose faith in the coin.

It works in a similar way with company stock market cap as well.

Some of the business bigwigs today were once a startup. Their market cap during their initial launch was almost nothing  in comparison to the gigantic numbers these companies flaunt today. But it would have been extremely unfair had the market judged the worth of these revolutionary companies based on just their market cap in their early days.

Final words

While marketcap crypto will always serve as a major influencer in your crypto investment decision, it’s not the “only” parameter to count on while investing in crypto assets. We will wrap up this post with a few pointers on the other significant factors that you must consider while making an investment.

Learn about the use case and technology

Always make sure to have faith in coins that are backed by advanced technology and assure a practical use case. Try to avoid those cryptos that are mostly rising up on hype.

Learn about the team and project roadmap

You must study the whitepaper of the crypto project/s you are planning to invest in. The whitepaper will offer you a solid idea about the ambition and the roadmap of the crypto project. You can put your trust in a coin that offers a growing roadmap, dotted with practical and timely upgrades.

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