Market capitalization, more often called market cap, is one of the most reliable indicators to measure and keep track of the market value of cryptocurrency. The market cap shows the actual value of any cryptocurrency.
Market capitalization is the term used to describe the total value of a currency or asset after considering supply and pricing.
At the time of writing, Bitcoin is the single largest cryptocurrency in market cap, with a little over 315 billion dollars. And I think it’ll stay “the biggest” for a while. And despite this, Bitcoin is not the most significant asset in market cap, but only the twenty-eighth or so.
Market cap isn’t a term introduced by the creation of crypto. Rather the opposite, the term “Market capitalization” originated with neoclassical economics in the late nineteenth century. Its concept, however, was a little different.
But how to calculate cryptocurrency value and its market cap?
How to calculate crypto market cap
To calculate the crypto market cap, you must multiply the Circulating supply by the price of one unit (one coin or token).
So market cap = circulating supply * coin price.
For instance, the current supply of Bitcoin is 19,219,981 BTC. That gives us one side of the equation. And the current price of $16,500 makes the second half.
Suppose we place that into the formula: 19,219,981* 16,500 = $317,129,686,500. Thus the market cap of Bitcoin is a bit over 317 billion dollars.
An alternative to the market cap is a Fully Diluted Market Cap. That would be the market cap if the max coin supply were reached. A fully diluted market cap causes problems, especially for coins that do not have a maximum supply, and coins with unlimited supply are usually not trustworthy.
How to calculate cryptocurrency value
We get the cryptocurrency’s price if we reverse the above formula; thus, we divide the coin market cap by its circulating supply.
So the value of cryptocurrency = market cap / circulating supply.
Let’s use the same numbers as in the example above. Bitcoin’s market cap is $317 billion, and the circulating supply is over 19 million.
So the value of this cryptocurrency is 317,129,686,500 / 19,219,981 = $16,500.
But you don’t need to calculate the current market prices. That’s why a platform like CoinMarketCap exists. It keeps track of crypto values, and so do you. So you can look without needing to calculate.
Conclusion
Knowing about the market cap is good for calculating a coin’s potential. For instance, put your favorite coin into the equation and replace the current price with its tenfold. If the result is a ridiculous number, that will outperform even the most giant coins in value.
Marketcap can help you:
- To set realistic expectations about the returns from a crypto
- To tell what value the cryptocurrency can reach
- To determine the real value of cryptocurrency
