💪The marketcap, or market capitalization, of a cryptocurrency project is a key indicator that reveals the total value of all units of that cryptocurrency circulating on the market. It is an essential tool for assessing the relative size and dominance of a cryptocurrency compared to others.
Here is what the marketcap actually reveals:
👉Size and Relative Importance: Marketcap is a way to compare the size of a cryptocurrency relative to others. A cryptocurrency with a high marketcap is generally considered more established and stable than a cryptocurrency with a low marketcap. Cryptocurrencies are often categorized into three categories based on their marketcap:
1-Large-cap: Cryptocurrencies with a high market capitalization (usually over $10 billion). They are considered the most stable and least volatile. Examples: Bitcoin, Ethereum.
2-Mid-cap: Cryptocurrencies with an average market capitalization (between 1 and 10 billion dollars). They offer a balance between growth potential and risk.
3-Small-cap: Cryptocurrencies with a low market capitalization (less than $1 billion). They have high growth potential, but are also much more volatile and risky.
🚀Growth potential and stability: A low market cap may suggest greater growth potential, as it is easier for a small cap to double or triple in value than a large cap. However, this also comes with higher risk. Conversely, a high market cap indicates greater stability, but more limited growth potential.
💰Liquidity: In general, cryptocurrencies with a high market cap have greater liquidity, meaning it is easier to buy and sell large quantities without significantly affecting the price. Cryptocurrencies with a low market cap may have lower liquidity, which can make transactions more difficult and expensive.
👌Market Dominance: Marketcap is also a measure of a cryptocurrency’s dominance relative to the overall cryptocurrency market. For example, Bitcoin dominance is the percentage of the total cryptocurrency market capitalization held by Bitcoin. A high Bitcoin dominance indicates that the market is still heavily influenced by Bitcoin, while a decline in its dominance may signal growing interest in altcoins.
⭐ How to calculate marketcap?
Calculating marketcap is simple:
Marketcap = Current token price x Number of tokens in circulation
For example, if a token is worth $2 and there are 1 million tokens in circulation, the marketcap is $2 million.
💻Marketcap limitations:
Although marketcap is a useful indicator, it has some limitations:
👉It does not take into account the total supply: Only the circulating supply is taken into account. A cryptocurrency with a low circulating supply and a high price can have a high marketcap, even if its total supply is much larger. Therefore, it is important to check the total supply and the token distribution schedule.
👉It does not reflect the quality of the project: A high marketcap does not guarantee the quality of a project. It is important to conduct thorough research on the technology, team, use case, and adoption of the project before investing.
👉It can be manipulated: Market manipulations, such as "wash trading" (simultaneous buying and selling of the same asset to artificially inflate volumes), can influence the price and therefore the marketcap.
Conclusion :
Marketcap is an important indicator to assess the size and dominance of a cryptocurrency, but it should not be the only decision-making criterion. It is crucial to combine it with other analyses, such as fundamental analysis and technical analysis, to have a more complete view of a project's potential. It is also important to understand the limitations of marketcap and not rely solely on this indicator to make investment decisions.
