What is a market cap in crypto?

Market cap in crypto, or in long form, market capitalization, is the total value of all coins of a given cryptocurrency that have been created or that are in circulation. Market cap in crypto is measured by multiplying the current price per coin by the circulating supply; for example, at the time of writing, Bitcoin has a market cap of $1.91 trillion. It is a vital indicator that measures the market value of a cryptocurrency and tends to be represented in US dollars. Market cap helps investors gauge and compare values across the crypto market, as even though a single coin might be worth more than another, it may have a lower market cap and, therefore, be worth less. 

In this article, we take a look at why market cap is considered one of the most valuable metrics for gauging a cryptocurrency’s dominance, relevancy and popularity, but also why it may not provide the whole picture as to an asset’s true potential. 

Market cap categories

When discussing market cap in crypto, experts and analysts will often divide cryptocurrencies into three categories: large-cap, medium-cap, and small-cap cryptos. This is also a quick way for investors to gauge the risk of a given coin, for example: 

• Large-cap cryptocurrencies have a market cap of over $10 billion. These cryptocurrencies are considered more stable and less risky. Some examples include Bitcoin (BTC, currently at $1.91 T), Ethereum (ETH, currently at $448.47 B), Solana (SOL, currently at $112.43 B) and Dogecoin (DOGE, currently at $61.66 B). 
• Mid-cap cryptocurrencies have a market cap of between $1 billion and $10 billion. These can have significant growth potential but also imply higher risk, such as Litecoin (LITE, currently at 9.88 B).
• Small-cap cryptocurrencies have a market cap of under $1 billion. These are often highly volatile and speculative, potentially offering huge gains but also the risk of crashing literally within a matter of minutes. Some examples include Evadore (EVA, currently at $56.63 K), Petals (PTS, currently at $76.32 K), and Kalm (KALM, currently at $124.91 K).

Why does market cap matter?

Market cap in crypto is a commonly used metric for ranking and comparing cryptocurrencies. In general, the higher the market capitalization of a cryptocurrency, the more dominant it is in the market. For this reason, it is often considered the most important indicator in order to rank cryptocurrencies.

It is also useful for assessing the risk of a given investment. For instance, large-cap cryptocurrencies are considered more stable and less susceptible to volatility, while small-cap cryptocurrencies offer higher gains but come with much higher risk. Investors often use market caps to help them diversify their portfolios and align them with their risk tolerance and investment goals. However, with this in mind, it is important to remember that market cap is not the sole indicator of a cryptocurrency’s value or long-term potential. 

Does a market cap have limitations?

While market cap in crypto is a valuable metric to indicate relevancy, the concept on which it is based is often subject to criticism and does have its limitations that can lead to an incomplete assessment of an asset’s true potential. For example, market cap does not take into account factors such as liquidity, trading volume, technological innovation, regulatory environment, or real-world adoption, which are vital for determining a cryptocurrency’s real viability and market. 

What’s more, investors that rely too heavily on market cap valuations may overlook important project features, including the quality of the development team, community suppor,t and long-term sustainability. Therefore, in order to make an accurate assessment of different cryptocurrencies’ potential and popularity, other metrics should always be taken into account, such as adoption rates, on-chain activity, liquidity levels, trading volume, and the overall health of the project’s ecosystem. 

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