What is market cap? How to calculate and use it for investment?

What is Market Cap?

Market Cap is a metric that measures the relative value of a token/coin in the crypto market. Market Cap is calculated according to the following simple formula:

Market Cap = Current Coin/Token Price (Current Price) X Circulating Supply

For instance, if a coin is currently priced at $10 and its circulating supply is 3,000,000 tokens, its total market capitalization would be 10 x 3,000,000 = $30,000,000.

A coin with a very small price, but with a very large circulating supply, can have a market capitalization value that is much higher than that of extremely high prices whose supply is too small.

Therefore, this metric will be especially important in determining the size of a certain coin instead of relying on the current price that most new investors often apply.

What does it do for the investors?

The market capitalization of a coin gives investors a relative view of the performance of these coins.

We can divide the coins into 3 types:

Large-Cap: These coins have a very large market cap (>1 billion USD) including the top of the largest cryptocurrencies today such as Bitcoin, Ethereum or Ripple.

Mid-Cap: Medium market cap, lower than the above coins and typically range in capitalization from $100M to $1 billion

Small-Cap (Small Cap): low market cap (<100M US$)

You can view these indicators on major cryptocurrency reporting sites like CoinmarketCap or CoinGecko

One of the important properties of Market Cap is that it is closely related to the price movements of that coin. More specifically, the larger the capitalization, the less volatility, and conversely, the smaller the cap, the stronger the price movement.

Therefore, new coins/tokens with small capitalization will often have the potential for a huge price increase, but with high risk. So investing in these coins/tokens can bring you great returns when x10 x100 times assets if at good times. Larger cap coins still have potential but can’t give you such a big reward!

However, the value of the market cap is not a determining factor as it cannot give you a complete picture of the potential of a coin. Note that these are relative figures only.

We BSCArmy always advise doing comprehensive research before investing in cryptocurrencies and taking into account all important considerations. Market capitalization as a statistic doesn’t tell you anything about actual trading volumes in the last few hours. As a result, it’s a good idea to check Coinmarketcap for a cryptocurrency’s 24-hour trading volume on several exchanges over a respectable time period.

 

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