If you are an active member of the crypto community, there is a great chance that you may have heard of a market cap. Market cap is seen as the total value of the tokens that have been mined, and it can be calculated by multiplying the current price of one token by the total number of tokens in circulation.
It is also called market capitalization, and it is an important tool used by crypto investors to decide if they should buy a coin or not.
It is used to decide the level of stability that a coin has, but it may not always be the case.
Typically, investors tend to see coins with a larger market cap as more stable compared to those with lower market caps.
The market cap is used as a metric to compare the value of different cryptocurrencies and see a complete story of what is happening. Investors may use it to check the growth potential. of the crypto, and to see if it is safe to buy at the moment.
Traditional companies and their shares are compared with financial ratios. In the case of cryptocurrencies, the market cap is one of the metrics used.
With the market cap, a user can compare the total value of a token to the other, allowing them to make educated decisions on their portfolio. Usually, cryptocurrencies are divided into different types based on the size of their market cap.
- Cryptocurrencies with large market caps. This usually involves the likes of Bitcoin and Ethereum, and it has a market cap of at least $10 billion. People feel that this type of coin had lower risks compared to others.
- Cryptocurrencies with mid-market cap. This type of coin had a market cap between $1 billion to $10 billion. Investors see them as coins with high growth potential but possess greater risks than large market cap coins.
- Cryptocurrencies with a small market cap.
This type of coin has a market cap of below $1 billion, and it may have a high level of swings in the market.