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Market Capitalization – An indispensable factor when investors learn or evaluate a business.
What is market capitalization?
Market Capitalization (Market Cap) is the Market Capitalization of a business as measured by the total cash value of all shares of a company or business at a specified time. In the cryptocurrency sector, this is understood to be the value of all coins that have been mined in the market at the time of mention.
In other words, market capitalization is considered a preliminary measure of asset stability. The company has a large capitalization like a larger ship that can safely weather market volatility.
The crypto market is similar, although even Bitcoin, the largest-cap currency, is sometimes volatile, but when a coin has a large market capitalization, it is more likely that it is still a more stable investment than small-cap currencies.
At the same time, currencies with small-cap value tend to fluctuate largely, bringing surge profits or also heavy losses after spontaneous market transactions.
Some other related notes: You may come across the term Circulating Supply or Fully Diluted , with Bitcoin, these indicators are: 18.5 million Bitcoins in circulation (as of 2021, according to Chainalysis) and 21 million Bitcoins (the maximum possible number of Bitcoins in the market).
Accordingly, each economist will have different ways of calculating capitalization according to one of these two methods.
Related: What is Liquid Staking? Breakthrough in DeFi development
Why is market capitalization important?
The price can only measure the amount of money corresponding to that coin. To talk and evaluate currencies more comprehensively, investors use the Market Capitalization factor.
This is important data for analyzing, clarifying and comparing development potential as well as risks between digital currencies when deciding to invest.
For example, when considering between the digital currencies A and B, an A coin that is selling for $1 and has 400,000 coins A circulating on the market, the market capitalization of A will be $400,000, the B is selling for $2 a coin and is circulating 100,000 coins on the market, B’s Market Cap will be $200,000. It is clear that a B is sold for more than an A coin, but overall the value of dong A is twice as high as B.
However, it should be noted that the market capitalization of many cryptocurrencies can fluctuate significantly due to their volatility.
If you only look at each price of coin B, you won’t know that coin A is more appreciated. Depending on the thoughts of each person, but the case on dong A is more people investing and using than proving, this coin has more people evaluating and trusting than the B.
Therefore, the market capitalization also helps users invest more wisely.
The market capitalization of a digital currency is divided into 3 categories as follows:
Large capitalization: Including Bitcoin, Etherum, the capitalization of these coins is worth over $10 billion.
Experts say these are low-risk investments thanks to clear growth and high liquidity, meaning prices are not highly volatile, even when the number of people withdrawing money increases.
Average capitalization: The market capitalization of coins of this type in the market ranges from 1 to 10 billion USD. Their prices are assessed as having a lot of untapped potential but also come with certain risks.
Small cap: This type has a market capitalization of less than $1 billion and is the most vulnerable to market sentiment.
Conclusion
Market Capitalization is a useful metric for comparing and evaluating the total value of the cryptocurrency, trends as well as market stability and your financial conditions. All of these factors need to be carefully evaluated to accurately measure risk when deciding to invest.
