What is Crypto Market Cap?
With Tradu you can trade crypto via CFDs.
Market capitalisation is a key indicator of the investment potential of cryptocurrency and can offer long-term clues over performance in an otherwise unpredictable and volatile market.
Keep reading to find out how to calculate market cap in crypto and why this metric can play an important role in your trading strategy.
- What is crypto market cap?
- Why is market cap important in crypto?
- How to work out the market cap of a crypto
- How does market cap affect crypto prices?
- What else affects crypto prices?
- Study crypto market caps and trade with Tradu
What is crypto market cap?
Market cap is an investment term that is short for market capitalisation. In stocks and shares, it refers to the total value of a company – the number of stocks multiplied by the trading price of a single share.
In the crypto world, market cap refers to the total value of a currency in circulation. A crypto market cap can increase and decrease in line with the fluctuations of a currency's value as well as when new coins are mined.
Why is market cap important in crypto?
Market cap is a key indicator of a crypto's long-term popularity. Investors will retain confidence in a crypto if a large number of mined coins have been traded for consistently high prices.
It is not a silver bullet, however. Dogecoin is one crypto notorious for having a vast amount of currency in circulation – part of its creators' intention for it to be a joke alternative to Bitcoin. This gives Dogecoin a market cap in the billions, although a single unit of the currency is only worth a few cents.
By comparison, Bitcoin's circulating supply will be capped at 21 million, so this has less of an impact on the coin's market cap. In turn, the coin's value has a far greater influence on the market cap figure, so it is a better-suited performance indicator.
Typically, a higher market cap figure means a lower-risk investment. A lower market cap might indicate the scarcity of a coin or that it is in its infancy. While this may present opportunities to traders looking to cash in on large margins, it may put off risk-averse counterparts.
Crypto market caps are generally categorised in three ways : large-cap, mid-cap and small-cap.
- Large-cap ($10 billion and above): Bitcoin and Ethereum have market caps that place them firmly in this category. With large amounts of currency in circulation and strong investor confidence, investing in a large-cap crypto is commonly seen as lower risk.
- Mid-cap: ($1 billion - $10 billion): These altcoins offer higher risk than large-cap alternatives but may also have greater potential if the currency is relatively new to the market.
- Small-cap: (Below $1 billion): Usually where the biggest levels of volatility are to be found. Cryptos in this category can be greatly impacted by relatively small levels of trading or sudden exposure in the media.
How to work out the market cap of a crypto
Calculating the market cap of a crypto is simple. Just multiply the trading value of the crypto by its circulating supply.
For example, say Bitcoin is trading at $23,400 and has a circulating supply of 19,300,000 coins, its market cap would be $451,620,000,000.
How does market cap affect crypto prices?
Market cap is seen as the clearest single indicator of a crypto's performance. Therefore, the higher the market cap, the more attractive it is to investors – and the higher its price is likely to be.
Crypto exchanges typically list currencies in order of market cap, highest to lowest, which in itself can influence investment decisions among newcomers and those looking to execute fast trades.
It is worth looking at the numbers beyond the market cap before making any investment decision, however, especially for altcoins. Market cap can be inflated by circulation or other factors.
What else affects crypto prices?
- Supply and demand: Like any other tradeable asset, crypto prices rise and fall in line with the number of people willing to pay for them.
- News and social media coverage: Small and even mid-cap cryptos can sometimes lurch in price simply off the back of social media chatter.
- Changes in regulations: As cryptos intertwine with centralised finance more and more, government influence could greatly impact values.
- Production costs: The process of mining Bitcoin alone uses more energy than many small countries.
For more information, you can read our guide to what affects cryptocurrency prices.
Study crypto market caps and trade with Tradu
Want to target mid-cap cryptos and trade in volatile markets? Perhaps you're looking to consolidate your portfolio with positions on large-cap options?
Whatever strategy you have in mind, you can put it to the test by trading crypto CFDs with Tradu. Get started by following these simple steps.
- Create your account: It's quick and easy to sign up for a Tradu trading account and you could execute your first trade in minutes.
- Learn the ropes: New to Tradu or trading in general? Our market, trading and platform guides have lots of useful information.
- Decide strategy: You can go long or short when crypto trading with us. Whether you think the value of a currency will rise or fall, you can still make a trade and potentially profit.
- Execute trades: Our order sheets can help you make your first trade in a matter of seconds.
- Track movements and close your position: Analyse the markets manually using our charts or take advantage of automated stop orders. When the time is right for you to close your position, you can do so swiftly.
- Diversify your portfolio: You can create a fully diversified portfolio from one single account with Tradu. Research other trading instruments such as listed stocks and CFDs on forex, stocks, commodities and indices.
Learn more about crypto CFD trading with Tradu
Market cap is just one way of analysing a cryptocurrency before you make a trade. Our extensive library of industry guides has plenty of information about this highly changeable market.