Understanding Cryptocurrency Market Capitalization

Market Capitalization is something that has traditionally only been applied as a measure of the total value of a publicly traded company. It is found by multiplying the number of shares outstanding by the price per share. It’s use as a measure of overall value is now being applied to bonds, commodities, and cryptocurrencies using the same formula.

What is Cryptocurrency Market Capitalization?

Cryptocurrency Market Capitalization is the circulating Supply of Coins * the Price Per Coin. Also referred to as Crypto Market Cap, it is the combined Market Cap of all cryptocurrencies.

Coin market cap, however, represents the combined market cap of a single coin. For example, Bitcoin’s Market Cap is ₿18,330,762  X $7200 = $132 billion, at the time of writing. This can also be referred to as the total value of bitcoin.

Is Circulating Supply the Same as Market Cap?

No. Circulating supply is all of the coins currently in circulation, that is, available to users. Coins may have a very high circulating supply but still have a low market cap. Ripple, for example, has a circulating supply of 44 billion XRP, but its market cap is only $8.4 billion, because its price per XRP is only $0.19.

What Cryptocurrency has the Biggest Market Cap?

Bitcoin has the biggest market cap at ~$132b ($320b at its peak), making it the same Market Cap as public companies like Visa, Johnson & Johnson, and IBM.

What Are Some of the Other Big Market Cap Coins?

There are a number of Bitcoin alternatives, referred to as “altcoins”, that have developed massive market caps of their own. Here’s a look at the top five at the time of this writing:

  • Ethereum is second at $19 billion (110.5m circulating supply X $172/ETH)
  • Ripple is third at $8b (44b circulating supply X $0.19/XRP)
  • Tether is fourth at $6.4 b (6.4b circulating supply X $1/USDT)
  • Bitcoin Cash is fifth at $4.3b (18.3b circulating supply X $234/BCH)

How Does Market Capitalization Affect Altcoins?

Market cap is a primary measure of total value. When altcoins have a high market cap, they are usually seen as more reliable – based on the assumption that more people have invested in that cryptocurrency – and when they have a low market cap they are seen as speculative, new, and less reliable cryptocurrencies.

Altcoin market cap is an important measure against Bitcoin for industry adoption. If it is lower compared to Bitcoin, that means there is less attention and investment being paid to altcoins. Lower altcoin market cap also implies less activity on their respective platforms and applications. The inverse is also true.

Are Coins with Small Market Caps Risky?

As a rule of thumb, yes. But, once upon a time, Amazon was valued at less than $500m mcap when it first went public, and Apple was just over $100m mcap when it went public – so finding Small Market Cap (also referred to as smallcap) coins/companies can be a really good way to get in early on the next big thing. This leads a lot of speculation to happen in small caps, with most of them ending up not panning out, but then there are the long shots that become large caps or even mega caps like Amazon and Apple (Ethereum, Ripple).

Can Market Caps Be Manipulated?

Yes. Market caps can be manipulated by manipulating the price of the coin. This happens often in small cap coins that have low active trading volume there and low circulating supply, making it easy for someone to manipulate the price up or down with a few thousand dollars.

Are Coin Market Caps the Same as Stock Market Capitalization?

No. The formula is the same, but that is the commonality. Stock market capitalization reflects the equity value in the company, which means how much the ownership of it is worth. This has important implications for attracting business, credit, and also operations. Coin market caps do not reflect equity in the company, because they are coins, not shares, meaning they hold no legal attachment to the company, and so are more like currencies.

What Are Other Important Factors Besides Crypto Market Capitalization?

  1. Price – This is a component of Market Cap, but has its own implications. Lower priced coins, like Ripple, can move more in % terms than higher priced coins like Bitcoin, solely because the $ difference is much smaller, so investors perceive it differently.
  2. Active Trading Volume –  As mentioned above, lower prices can also make it more prone to manipulation, but this also relies on low active trading volume. The more volume, the more accurately it reflects a ‘real’ value of the coin.
  3. Circulating Supply & Max Supply – Circulating supply is the total amount available to users right now, and Max Supply is the max amount of coins that will be available to users in the future. For Bitcoin this is the well known amount of ₿21m. These two are important because if the coin has a low circulating supply relative to max supply  (like XRP, 44b compared to 100b max supply) it becomes risky for investors as this uncirculated supply can flood the market in the future and crash prices (like XRP).
  4. Volatility – This is a component of all the above factors. The less circulating supply, lower active trading volume, and lower price, the higher the volatility. Volatility can be good or bad, depending on what your risk and return objectives are.

About the Author

CryptoVantage Author Jack Spade

Jack Spade

Jack Spade has been investing in Bitcoin since 2015. He has developed a keen sense of where the industry is going, and is continuing his research into blockchain applications. His interests lie in private capital, startups, and financial technology.