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What is Crypto Market Cap (Market Capitalization)? What does Crypto Market Cap mean for Investors?

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The whole worth of a cryptocurrency is defined as its market capitalization. Whereas stock market capitalization is measured by multiplying the share price by the number of outstanding shares, crypto market capitalization is derived by multiplying the cryptocurrency's price by the number of coins in circulation. For example, the market capitalization of Bitcoin is calculated by multiplying the current total of coins in circulation – over 18 billion — by the price of Bitcoin at the time. Bitcoin's market capitalization swings as its price swings, which it does regularly.

What Does the Cryptocurrency Market Cap Indicate for Investors?

In the stock market, understanding a company's market capitalization categorizes it as a small-cap, mid-cap, or large-cap. Understanding market cap is essential because an investor may choose to split their investment into such groups for a variety of reasons. The term "market capitalization" is frequently used to describe how much a business is worth, and this value might be mirrored in how risky it is to invest in the firm. Large-cap equities are often less hazardous but grow at a slower rate than mid- or small-cap companies.

However, cryptocurrency is very new. These sorts of categories haven't yet been developed because the technology is so new. And, because experts advise sticking to Bitcoin and Ethereum and not allowing crypto to account for more than 5% of your whole investment, there is less need to consider market size when making investing decisions.

Knowing the bitcoin market cap is useful if you want to understand the breadth of the potential of a particular token, but it should not be as important in your investment choices as it is in the stock market. While market capitalization has a much more restricted relevance in crypto trading, it can potentially assist influence the approach you invest in Bitcoin and Ethereum in one aspect.

How to Implement a Crypto-Weighted Market Cap Strategy

A weighted market cap approach entails investing a proportionate amount in each asset depending on its market capitalization. So, if you add up the total market capitalizations of Bitcoin and Ethereum, then divide the percentages each crypto owns in that total, you'll get around 71 percent Bitcoin and 29 percent Ethereum. This method can assist you in determining how to invest $100 in the two most popular cryptocurrencies: $71 in Bitcoin and $29 in Ethereum.

While the experts suggest you shouldn't deal with other altcoins (anything other than Bitcoin), the same logic may theoretically be applied to whatever you choose to put in your portfolio. Simply assign a fraction of your entire investment amount to each coin depending on its proportionate market capitalization. At the very least, this assures that you are investing far less in other cryptos and significantly more in the safer Bitcoin and Ethereum.

It's also worth noting that, because cryptocurrency values vary so significantly, market capitalization is continuously changing. This fluctuation, as well as the possibility of the market dropping out totally, is why experts advise maintaining any investment incredibly limited and only investing what you're willing to lose.

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by Sam Wilson

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Apr 29, 2022 4:58 PM

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