Cryptocurrency Market Cap: How Does It Work?

With our updated interface came the ability to display Market Cap as a metric. How does cryptocurrency market capitalization work?

Cryptocurrency Market Cap: How Does It Work?

Our new website added Market Cap as a metric that can be used to sort our exchange's asset list and it is also displayed on every token order book. Cryptocurrency Market Capitalization or Cryptocurrency Market Cap is an often cited metric when determining the value of a cryptocurrency, the growth potential of the crypto asset and, the investment risk involved.

Market Cap displayed on Saturn Network

In this article, we are going to learn how crypto market cap works and break down how you can use it as a metric to make your own cryptocurrency investment decisions.

Calculating Market Cap for Cryptocurrencies and Tokens

Stock market analysts often look at a company's market capitalization to make an informed investment decision, with the reasoning that it is a better indicator of a company's worth than the price of its individual shares. The calculation is done by multiplying the current share price by the total number of existing shares. In cryptocurrency terms, this means the current price of a coin or token times the total circulating supply.

Cryptocurrency Market Cap = Total Circulating Supply * Current Price of Coin / Token

Let's take a look at a real-life example together, on the screenshot above we can see two Ethereum Classic tokens at the bottom: eBOMB and our own Saturn Classic DAO Token.

POW and SATURN

Note that SATURN's market cap currently valued at $1,009,245 USD is around 7 times higher than POW's current market cap at $138,638 USD. Yet POW in terms of price is trading roughly 6 times higher than SATURN. The reason why SATURN's market cap is valued higher than POW is because it has roughly 47 times more circulating supply.

Large Cap vs Mid Cap vs Small Cap

So what is the point of ranking tokens by market cap? What are we learning from this metric?

It helps us determine how much risk we are dealing with when we choose to invest in a cryptocurrency. And it also gives you a good idea about the growth potential of a crypto asset. Broadly speaking we can classify coins and tokens into Large Cap, Mid Cap, and Small Cap.

  • Large-cap cryptocurrencies are seen as "safer" investments to make because of their big market cap, thought to be less prone to volatility. Analysts normally classify companies with more than $10 billion market cap as large-cap companies. Going by that estimate, only Bitcoin, Ethereum and Ripple would be classified as large-cap cryptos.
  • Mid-cap cryptocurrencies are usually defined as cryptos with market caps between $1 billion and $10 billion. So here you would find coins such as EOS, Bitcoin Cash or Monero - yes, all established coins but much more prone to market volatility and therefore seen as having more risk.
  • Small-cap cryptocurrencies have the smallest market cap(below $1 billion), seen to be a higher risk because they are more susceptible to the whims of the market. They also have the potential to truly explode in value and give you a much higher return on your investment. Here you could find projects that are truly undervalued.

Risk vs Reward

An asset's market cap can be a great metric for identifying projects that will reward you highly for being an early investor, for example, LINK would still be considered a small-cap cryptocurrency yet they have seen an ROI from launch of 1,410%. An example that shows it is not simply about blindly investing in cryptocurrencies with small market caps - that would be very risky but also about doing your research.

When investing in crypto it is essential to do your research, to find out what the project or asset you are investing in is worth. By understanding what something is worth (its value) then it is possible to judge as an investor if a coin or token is undervalued with potential to grow or if the time to invest is over.

This is a way for you to migrate the risks. If a project does have a small market cap, but your research shows that the technology is real, the underlying fundamentals are there and the use-case exists - well then I think we can agree these are the undervalued projects that have the most growth potential in crypto.    

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