Market capitalization often referred as “market cap” is used in company’s stocks as well as in cryptocurrency.
The overall value of a cryptocurrency is known as its market capitalization. Whereas stock market capitalization is derived by multiplying the price of a stock by the number of shares outstanding, cryptocurrency market capitalization is calculated by multiplying the price of a cryptocurrency by the number of coins in circulation.
Knowing a company's market capitalization in the stock market assigns it to one of three investment categories: small cap, mid-cap, or large-cap. Knowing market cap is crucial because an investor may choose to divide their investment into various groups for a variety of reasons. A company's market cap refers to how much it is worth, and this value might be reflected in how risky it is to invest in it. Large-cap equities are less hazardous than mid- or small-cap companies, but they develop more slowly.
Knowing the market capitalization of a cryptocurrency is useful if you want to understand the breadth or potential of a particular token, but it shouldn't play as significant a role in your investment decisions as it does in the stock market. "It's critical to understand that cryptocurrency is not the same as the stock market," Jully Alma-Taveras, the personal financial expert behind "'Investing Latina" on Instagram, explains. "This is a totally different universe."
There is also an investing strategy called weighted market cap strategy entails investing a proportional amount in each asset based on its market capitalization. So, if you add up the total market capitalizations of Bitcoin and Ethereum and split them by the percentages each crypto holds in that total, you'll get 71 percent Bitcoin and 29 percent Ethereum. This method can help you figure out how to invest $100 in the two most popular cryptocurrencies: $71 in Bitcoin and $29 in Ethereum.
Formula for calculating market cap of certain cryptocurrency is:
Market Cap = Number of coins X Price of a coin
For example, if the price of Bitcoin is 40.000 USD, and if the number of coins in circulation or on the market is 18.925.000, the calculation is following:
Market Cap Bitcoin = 18.925.000 X 40.000 USD = 757.000.000.000 USD
Based on the calculation we can see that at given parameters, market capitalization of Bitcoin would be 757 billion dollars.
The same calculation is used for all cryptocurrencies available. We have used Bitcoin as an example, because it is the biggest crypto on the market according to market cap.
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