Market cap refers to the overall valuation of cryptocurrency in terms of the supply of coins. Cryptocurrencies are ranked in terms of their market cap, and this measure can also be seen amongst stocks and financial assets. Market cap is more meaningful than the price, as it holds vital information allowing both traders and investors to gain proper insight into the asset’s value.
Meaning Of Market Cap
Market cap or market capitalization is the product of the circulating supply of a cryptocurrency and its current price. It is an important metric in the world of cryptocurrency which is used in ranking these digital assets as per their relative sizes.
- Market Cap = Circulating Supply x Current Currency Price
Bitcoin’s Market Cap
Bitcoin ranks highest in the world of cryptocurrency in terms of its market cap, which has hit the $280 billion mark recently, following its price surge to $15000. Its current market value exceeds $112 billion, whereas Ethereum stands second with a market cap of $20 billion. Bitcoin’s current market cap exceeds some of the big-shot companies of the United States. It recently overtook major publicly-listed companies like PayPal, Verizon, Salesforce, Adobe, Netflix, Disney, Bank of America, and Coca-Cola.
However, it still has a long way to go before catching up on JPMorgan Chase, Mastercard, and Visa. Bitcoin has to attain a price of $23000 for reaching the market cap of $426 and surpassing these above-mentioned corporates. As per Torso Investments’ portfolio manager, Dan Weiskopf – any Bitcoin investment between $10 billion – $20 billion would be more profitable than Apple’s plan of stock buybacks. Often investors draw comparisons between Bitcoin and gold. Such comparisons have received greater impetus in the modern times of economic uncertainty. Bitcoin has to attain the price level of $38000 per BTC for surpassing the market cap of the yellow metal, which stands at around $8 to $9 trillion.
Comparison Between Price & Market Cap For Calculating Value
Price is uni-dimensional and offers information on the trading value of each coin. However, it doesn’t reflect the true value or scarcity of an asset. Whether a commodity or service is available or not determines its demand and supply equation to a great extent. Rare products are valued more compared to the ones in abundant supply. Market cap considers availability, which offers deeper insight into the digital currency’s value while you buy cryptocurrency in India.
Suppose two cryptocurrencies are worth $1, one of them has a circulating supply of 1 million, whereas the other has a circulating supply of 1 billion. The first currency will have a market cap of $1 million ($1 x 1,000,000) and the second one will have a market cap of $1 billion ($1 x 1,000,000,000). This example proves that you cannot gain an understanding of the full story by just looking at the price.
Drawbacks Of Market Cap
Market cap is an excellent metric for ranking cryptos. However, it suffers from certain loopholes which are a direct result of the inherent imperfections in circulating supplies as mentioned below:
- You cannot understand the cumulative crypto investment from its market cap. It just reveals a picture of the circulating supply’s total value at its current market price.
- The market cap changes drastically for illiquid cryptocurrencies, even with a small number of trades. This could bring a spike in the price of the crypto, and ultimately its market cap.
- As more coins are mined, its supply increases in the market. This enhances its level of supply and the market cap.
Final Words
Market cap shows a clear picture of the level of investment risk involved in a particular crypto. A high or low market cap reveals whether a coin is resistant or vulnerable to price volatility. Coins having smaller market caps are more prone to price fluctuations whenever a big news hits the market. Holders of small cap crypto are at heightened risk of being crushed by big traders whenever they conspire to sell simultaneously, causing the token price to crash. This is not the case with coins having bigger market caps like Bitcoin and Ethereum. Bitcoin live price in India as on 24.11.2020 is 1,386,782 INR and investors can be guaranteed that the price of this premier crypto won’t be manipulated that easily. While sudden alterations in a coin’s circulating supply can cause the market cap to change drastically, it is still considered to be the best metric of ranking coins and holding comparisons of their overall value.
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Frequently Asked Questions
Is Cryptocurrency Safe To Invest In?
Cryptocurrency investments are subject to market risks, but if sufficient security measures are not taken, trading accounts can be maliciously accessed. Investments come with risks and uncertainties, and we cannot claim that any digital currency investment is risk-free. Buying and selling cryptocurrencies can be risky even if the trader is knowledgeable about the market and treats their coins carefully.
Is Ethereum Safe To Invest?
The Bitcoin market is unquestionably more volatile than the stock market. This may not be the market for you if you are incredibly risk-averse. Ethereum, on the other hand, may be a terrific investment for you if you're a diamond-handed investor who won't lose sight of short-term losses. Ethereum is a relatively safe investment as it is also based on blockchain.
Is Pi Cryptocurrency Safe?
Pi Network captured the crypto community’s interest even before it officially debuted. Its innovative mobile mining approach and user-friendly design simplify crypto adoption for a broader audience. Some users see this as a chance to get engaged in the crypto from the beginning and profit in the future, similar to how early Bitcoin adopters made huge profits by mining and keeping the coin. Other users have compared Pi to a worthless multi-level marketing (MLM) scheme.
What Is Virtual Currency?
Virtual currency is a type of uncontrolled digital currency that can only be used online. It is exclusively stored and transacted using designated software, mobile or computer applications, or unique digital wallets, and all transactions are conducted through secure, dedicated networks. Because digital currency is just currency issued by a bank in digital form, virtual currency is not the same as a digital currency. Virtual currency, unlike ordinary money, is based on a trust structure and cannot be issued by a central bank or other banking regulatory organization.
How Cryptocurrency Works?
Cryptocurrencies use cryptography technology to keep transactions and their units (tokens) secure. Cryptocurrency works via a technology called the blockchain. A blockchain is a decentralized technology that handles and records transactions across numerous computers. The security of this technology is part of its value.
Are Cryptocurrencies Legal In India?
In India, cryptocurrency is legal, and anyone can buy, sell, and trade it. Because India lacks a regulatory system to regulate its operations, it is presently uncontrolled. According to the Ministry of Corporate Affairs, companies must now document their crypto trading/investments inside the financial year.
What Is The Safest Cryptocurrency To Invest In?
Bitcoin has had the highest market capitalization, has been around the longest, has the most experienced development team, and has enormous network impact and brand recognition. As a result, while trading cryptocurrencies, the rate of return on Bitcoin is commonly used as a benchmark. However, the risks associated with cryptocurrencies remain, and the safest cryptocurrency for you depends on your analysis.
Who Invented Cryptocurrency?
Satoshi Nakamoto invented cryptocurrencies and the technology that makes them function in 2009. The presumed pseudonymous individual or persons who invented Bitcoin used this identity. In addition, Nakamoto created the first blockchain database. Even though many people have claimed to be Satoshi Nakamoto, the person's identity remains unknown.
Is crypto legal?
Crypto is legal in most countries, including India. While nations like the U.S. and many in Europe have regulatory frameworks, others like China have strict bans.
Which Cryptocurrency Is Best To Invest In 2021?
Many altcoins are flourishing to invest in. Some cryptocurrencies with great potential are Ether, Ripple, Tron, and more. Investors are trying to diversify their portfolios and are flocking to the leading cryptocurrencies. Many growing businesses are already accepting cryptocurrency as acceptable payment methods.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
