Understanding Crypto Market Cap – How is it Calculated?

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Understanding Crypto Market Cap – How is it Calculated?

As a crypto newbie, you must have heard about the word market cap or market capitalization and wondered how it works or how to calculate it. Market

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Last updated on February 14th, 2023 at 08:38 am

As a crypto newbie, you must have heard about the word market cap or market capitalization and wondered how it works or how to calculate it.

Market cap is a very important detail to take note of when picking interest in a crypto asset. Experienced traders or investors look at this information before deciding on when to buy, sell, or HODL a coin.

This is a very crucial part of the crypto market and the investment world in general. It will be good to know that there is a formula for calculating the market cap of crypto and that the market cap is not a stagnant figure.

Now that we have established the importance of this, we will now take a look at a more in-depth explanation of what it is and further show you how to calculate it.

What is a crypto Market Cap?

We could go round and round with explanations of what a market cap is, but the simple and easy definition is, that the crypto market cap in simple term is the total value of all the coin that has been mined. It can also be said to be the total value of a cryptocurrency. You can know how much a crypto asset is currently worth with the market cap.

In the stock market, market capitalization refers to the total dollar value of a company’s share of stock. The resulting figure can help you determine how large a company is.

Crypto assets can be classified based on their market cap. We have four major categories of assets as regards their market cap. See below:

Categories of Crypto based on Their Market Cap

Market capitalization can be classified into four categories. These categories will help you understand the value level of the different assets in the cryptocurrency market. If you are interested in investing, these categories will help you measure the size of a coin about others and help you make better decisions.

The market capitalization can be divided into four categories namely:

  • Large-cap Cryptocurrencies
  • Mid-cap Cryptocurrencies
  • Low-cap Cryptocurrencies
  • Micro-cap Cryptocurrencies

1. Large-cap Cryptocurrencies

Generally, investing in cryptocurrencies with a large market cap is a good and more safe strategy. These are cryptocurrencies with huge market capitalization. They are known to have higher liquidity and also attract more investors.

These types of assets are not difficult to find, they are present in almost every crypto exchange platform. Furthermore, an asset is considered to be a large cap if its market capitalization is above $10 billion.

Some examples of crypto with a large market cap include:

  • Bitcoin – Market cap $361 billion
  • Ethereum – Market cap $201 billion
  • Tether (USDT) – Market cap $67 billion
  • USD Coin (USDC) – Market cap $51 billion
  • Binance Coin (BNB) – Market cap of $45 billion

Note: The list was compiled as of the time of writing this post with data from CoinMarketCap.

2. Mid-cap Cryptocurrencies

Cryptocurrencies that fall under this category are said to be higher risk assets than that large caps. A coin is considered to be mid-cap if its market capitalization falls between 1 to 10 billion dollars.

This list has grown extensively over the years and it wouldn’t be surprising to see more altcoins fall under this category in the future. This category is generally considered to be one with untapped profit potential.

In long term, mid-cap cryptocurrencies tend to show good performance, and having them in your portfolio can increase your asset diversification.

Some examples of crypto with mid-market cap include:

  • Dogecoin (DOGE) – Market cap $8 billion
  • Polkadot (DOT) – Market cap $8 billion
  • Polygon (Matic) – Market cap $7.3 billion
  • Dai (DAI) – Market cap $6.8 billion
  • Shiba Inu (SHIB) – Market cap $6.6 billion

Note: The list was compiled as of the time of writing this post with data from CoinMarketCap.

3. Low-cap Cryptocurrencies

You should have already been able to guess what low or small-cap cryptocurrencies are by now. Cryptocurrencies that fall under this category have a market capitalization of $100 million to $1 billion.

Investing in cryptocurrencies that fall under this category should be done with caution as they are known to be very volatile and high-risk investments. They also have the potentials to grow in the short term.

Furthermore, these assets can not be found in most crypto exchanges because of their less liquidity and high volatility.

Some examples of crypto with a low-market cap include:

  • Dash (DASH) – Market cap $498 million
  • Basic Attention Token (BAT) – Market cap $482 million
  • Waves (WAVES) – Market cap $480 million
  • Stacks (STX) – Market cap $470 million
  • Zilliqa (ZIL) – Market cap $458 million

Note: The list was compiled as of the time of writing this post with data from CoinMarketCap.

See our list of top 5 low market cap cryptos to invest in in September.

4. Micro-cap Cryptocurrencies

Micro cap cryptocurrencies pose the highest risk with the highest volatility. These are newly launched coins by a group of people or an anonymous group and they have a market capitalization of less than $50 million.

Investing in coins that fall in this category is very risky, but can also be a very quick way to earn profits in a short time.

Why is Market Cap Important to Traders and Investors?

As a crypto investor, knowing the total market cap of an asset can help show evidence of a project’s presence in the market. It helps you determine the potential of an asset.

How to Calculate Market Cap?

After understanding what a market cap is and also the different categories they are divided into, the next thing to know is how to calculate the market cap of a coin. As we stated earlier, it is good to know the formula used in calculating the market cap of crypto.

Market cap is calculated by multiplying the total number of that crypto in circulation by the price of each coin, the resulting figure is the market cap.

total circulating supply x unit price = crypto market cap

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