Market Capitalization of Cryptocurrencies


Market Capitalization of Cryptocurrencies
Market Capitalization of Cryptocurrencies

The phrase market capitalization (or market cap) is used in the blockchain industry to describe a metric that gauges the relative size of a cryptocurrency. It's computed by multiplying a coin's or token's current market price by the total number of coins in circulation.

Market Cap = Current Price x Circulating Supply

For example, if each unit of a cryptocurrency is valued at $10.00 and the circulating supply is 50,000,000 coins, the cryptocurrency's market capitalization is $500,000,000.

While the market capitalization of a company or cryptocurrency project might provide some insight into its size and performance, it is crucial to realize that it is not the same as money inflow. As a result, it does not reflect the amount of money in the market. This is a widespread fallacy because market cap is directly dependent on price, but a relatively little change in price can have a huge impact on market cap.

In the above scenario, a few million dollars may theoretically boost the cryptocurrency price from $10.00 to $15.00, increasing the market value from $500,000,000 to $750,000,000. This does not, however, imply that there was a $250 million inflow into the market. Actually, the amount of money required to cause such a price increase is determined by volume and liquidity, two concepts that are distinct but related.

While volume refers to the quantity of assets traded in a given period, liquidity refers to the ease with which an asset can be bought or sold without having a significant impact on its price.

Simply defined, because there are many orders in the order book and possibly a large volume of orders within diverse price ranges, a high-volume and liquid market cannot be easily manipulated. As a result, the market would be less volatile, and a whale would require a lot of money to meaningfully affect the price.

A tiny order book in a low-volume market, on the other hand, might be easily overpassed with a small amount of money, generating major price and market cap changes.

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