How Are Cryptocurrency Market Capitalizations Calculated?
Assessing Cryptocurrency Market Capitalizations
As an investor, you rely on a variety of tools to judge the potential of a product or currency. Familiarizing yourself with the terms and metrics by which an investment is assessed is essential to making an informed decision. One of the challenges inherent to investing in alt coins is understanding the highly technical language used to speak about these products.
However, once you strip away the jargon, cryptocurrency is no different from any other investment. Financial advisors use many of the same measurements to determine value and growth potential. Cryptocurrency market capitalization is one such term — here’s what it means and how analysts calculate it.
What Is Market Capitalization?
Market capitalization is simply another way of assessing the size of a company. Like an organization’s profits, assets or stock value, market capitalization tells us how much a business is worth and what potential it has for future growth. Economists calculate market capitalization by multiplying the total number of a company’s outstanding shares by its stock price.
Analysts frequently describe publically traded companies as small cap, mid cap or large cap. Smaller cap companies present more opportunities for growth, but higher risk. Businesses with a larger cap, on the other hand, are considered more stable and secure.
What Is Cryptocurrency Market Capitalization?
Cryptocurrency market capitalization measures the strength of the overall cryptocurrency market as well as the relative strengths of individual products. Like conventional market capitalization, it’s calculated with a simple formula, multiplying price by circulating supply. However, some distinctions are necessary:
- Price refers to the weighted average of all reported prices for a currency
- Circulating supply refers to the total number of coins available in the open market
Circulating supply is contrasted by total supply, which is the total number of coins in existence, and by max supply, which is the maximum amount of coins the system is capable of producing. For example, Bitcoin has a hard limit of 21 million individual coins, which is not projected to be fully mined until 2140.
Assessing the Strength of the Cryptocurrency Market
The total market cap of all publically available cryptocurrencies is a useful way of measuring the overall strength and health of the market. In June 2017, the total cryptocurrency market cap exceeded $100 billion for the first time — good news for both early investors and those waiting to invest with confidence.
You can find current figures for total market capitalization and individual cryptocurrency rankings on sites like Coin Market Cap, among others. Listing on one of these indexes typically is accompanied by a surge in demand and pricing for new cryptocurrencies.
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