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What Is Cryptocurrency Market Cap? Why Is It Important?

By November 23, 2020November 24th, 20234 minute read

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. 

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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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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 A Good Investment?

Cryptocurrency has the potential to make you extremely wealthy, and the potential to cause you to lose your money. Crypto assets, like any other investment, come with many risks and potential rewards. Fundamentally, cryptocurrency is an excellent investment, particularly if you want to gain direct exposure to the demand for digital currency.

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.

What Is The Meaning Of Crypto?

A cryptocurrency is a digital currency that is secured by the process of cryptography, making counterfeiting and double-spending almost impossible to happen. Blockchain technology is used to produce cryptocurrencies ( a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are distinct in that a centralized authority does not issue them.

How To Invest In Cryptocurrency Stocks?

Cryptocurrency can be purchased in two ways: through mining or exchanges. The process of confirming and adding transactions to the blockchain public ledger is known as cryptocurrency mining. Cryptocurrency exchanges are another option. Exchanges make money by charging transaction fees, but there are alternative platforms where you may communicate directly with other cryptocurrency traders.

Is Cryptocurrency Banned In India?

No, cryptocurrency is not banned in India. India has seen its ups and downs in the crypto sector concerning its legal status. The Reserve Bank of India (RBI) issued a circular in April 2018 advising all organizations under its jurisdiction not to trade in virtual currencies or provide services to assist anyone in dealing with or settling them. A government committee proposed outlawing all private cryptocurrencies in mid-2019, with up to ten years in prison and severe penalties for anyone dealing in digital currency. The Supreme Court overruled the RBI's circular in March 2020, allowing banks to undertake cryptocurrency transactions from dealers and exchanges.

Is Pi Cryptocurrency Safe?

Pi Network (PI) is the newest digital token to catch the cryptocurrency community's interest, even before it has wholly debuted. Some users see it as a chance to get engaged in a cryptocurrency 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.

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.

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 Are The Best Cryptocurrencies To Invest In?

The best cryptocurrencies to invest in would be the ones you study and analyze in detail. Some of the most popular cryptocurrencies include Bitcoin, Ethereum, and many altcoins such as Tron, Ripple, Litecoin, etc.

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.
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