Before making financial decisions in the crypto market, do you ever pause to wonder what a network or project is worth in its entirety?
What its market position would be in the not-distant future, undervalued or overvalued?
Calculating the market capitalization of a crypto asset is not a complicated process.
But the total market cap of the crypto market goes way beyond the valuation of just Bitcoin, Ether, and a few trending stablecoins. There’s definitely more.
Let’s see what more there is in this article about market capitalization.
What is crypto market capitalization?
As the name suggests, market capitalization is a measure of the current market value of a cryptocurrency network. People often refer to it as “market cap”.
You can calculate it by multiplying the circulating supply of a crypto asset by the price of a single unit of that asset.
For instance, let’s take the network YouCoin which has a circulating supply of 20,000 at $10 each out of a total supply of 50,000. How do we find the current market cap of YouCoin?
Market cap = circulating supply × price
YouCoin market cap = 20,000 × $10 = $200,000
How about another network, MeCoin with a circulating value of 10,000 at $1 each and a total supply of 1,000,000?
MeCoin market cap = 10,000 × $1 = $100,000
If you compare both networks, you’ll find that YouCoin’s price is 10 times more than the price of MeCoin. But the value of the MeCoin network is worth more than the network of YouCoin.
This makes market capitalization a better evaluation of a network’s value than just the price of a single coin in the network.
What is the total crypto market capitalization?
Sometimes, the market cap of some projects can be so towering that it leaves you amazed. But do you ever wonder what the entire crypto market is worth?
Total market capitalization is the sum of the market cap of Bitcoin, altcoins, tokens, stablecoins, and other crypto assets in the market.
This metric always answers your question of the total value of the crypto market although this value is always changing due to the volatility of the market.
The crypto market is currently worth $2.5 trillion at the time of writing this article according to CoinMarketCap.
What’s the importance of total crypto market capitalization?
You can use a total market cap to compare the entire crypto market to other sectors.
For instance, you can compare the total market capitalization of the crypto market to the total market cap of stock or precious stones.
You might ask yourself, why would I want to do this comparison? Understanding this metric can help you estimate what the market would be worth in the nearest future.
Despite the importance that goes with the total market cap, no one knows exactly how to accurately evaluate the worth of all crypto assets and blockchain projects.
As a result, it’s also important that you follow it up with more research data and facts and not just rely on the numbers.
With that in mind, it’s also important to treat the cryptocurrency space as a new and growing market.
Because of its newness, it wouldn’t suddenly create a huge appeal to forex traders, stock traders, and other kinds of investors.
So, it’s not often that you might want to compare it with other financial markets.
Could total crypto market cap be misleading?
While trading crypto responsibly, you could get excited about making financial decisions using the total crypto market capitalization.
However, bear in mind that making investment decisions based solely on this metric can often be misleading for some reasons.
First, you will evaluate a coin in a network by multiplying the available supply by the price of each individual coin, as we did earlier to get the market cap.
However, what happens when the data available to you is incorrect? Every evaluation you make with the data will be invalid.
Also, manipulating the market capitalization of a project is not such a difficult thing to do. Some irresponsible projects indulge in this manipulation to create false value and security.
Even so, due to the volatile nature of the crypto market, the total market cap is never fixed.
You can take a moment to check this value as you read this. Remember, at the time of writing this article, the value was $2,724,609,086,043.
Did you find the same value?
The total market capitalization only represents the value of the crypto market at a given time. We know this value won’t be the same in 6 months
What then is diluted crypto market cap?
Estimating the market cap of a project can happen in different ways. But you can get an approximate value of a network in the future by calculating its Diluted Market Cap.
If you’ve been in the stock market, you’d agree that the term “diluted market cap” is predominant in that market.
In the stock industry, it is a representation of a company’s value if it exercises all its stock options and converts all its securities to stock.
To calculate the diluted market cap, it’s important that you keep the circulating and total supply of a crypto asset in mind.
So, you’ll be multiplying the total supply by the current price of an individual coin.
This is because, as a fact, not all projects have their total coin supply in circulation at this very moment.
For instance, take Bitcoin. Do you know there will be a maximum of 21 million bitcoins?
Well, as of now, there are 18.864 million BTC in circulation. This gives a market cap of about $1.205 trillion at a price of around $63,900 per BTC.
In calculating the diluted market cap, you would use the maximum supply of Bitcoin instead of the circulating supply.
This means you multiply 21 million by the current BTC price of $63,900.
The result of this calculation is the diluted market cap of Bitcoin, and it’s approximately equal to $1.340 trillion.
You can do this for any other asset in the crypto market. While the diluted market cap will not be so exact considering market fluctuations, it will give you an idea of an asset’s market position in the nearest future.
Considering that many crypto assets’ circulating supply will increase with time, their diluted crypto market cap will be higher than it is today, even if the price stays the same.
This, however, is with the exception of deflationary tokens that are continuously trying to reduce their maximum supply.
Wrapping it up
One of the most essential metrics to follow is crypto market capitalization. It presents the fluctuation in the valuation of the entire cryptocurrency industry.
Additionally, it can be useful to distinguish between the actual market cap as it appears today and the diluted market cap that will result further down the road.
However, it’s also important to take into account other metrics. The market cap is only one factor to consider. And bear in mind, before making any financial commitments, it is necessary to research other aspects of the industry.
Want more information? Here’s what you should know before buying your first crypto.