- The capitalisation of the markets causes a hierarchy to exist that is based upon popularity within the markets.
- The market cap is important as this can be used to help investors.
As a cryptocurrency investor, or as someone interested in crypto and simply just reading up on the news, you probably often find yourself staring at the markets via a database such as CoinMarketCap or CryptoCompare. If you’re really clued up, you’ll know exactly what all the intricate data means and may even spend time comparing hourly price changes much like a traditional investor would. However, for the fringe investor, these databases can often be tricky to navigate. With so many different terms, figures and values, what is it we are really looking for?
Value, that’s the big one. We observe the value of cryptocurrencies because they hold our investments and thus, the value of a single coin (generally against UDS) can help us calculate the value of our entire holding. Price movements always come next. How has the value of our chosen crypto changed over the past hour, the past twenty four hours and the past week? These changes can be used to help us determine what could happen next - though do remember that this is often a guessing game.
Now, this brings us to coin market capitalisation and frankly, the focus point for this article. What is it, what does it mean, and why is it important? When using the likes of CoinMarketCap, market capitalisation is often used to rank cryptocurrencies.
The capitalisation of the markets causes a hierarchy to exist that is based upon popularity within the markets and therefore, allows some cryptocurrencies to be seen as bigger and better than others. A higher market cap means a higher ranking, higher mainstream adoption, more news exposure and generally, a larger community. The rank is determined by how much of the overall market share exists as that specific cryptocurrency. So, if we pooled all the cryptocurrencies together as single coins, how many of them are Bitcoin tokens? That number, determines market cap.
The market cap is important as this can be used to help investors determine future movements and changes within the market. When the market cap increases significantly, more money suddenly moves into the crypto, as a result, we can often expect the value of that cryptocurrency to spike. The opposite can happen when the market cap sinks, this can be down to a major sell off causing investors to lose confidence in the asset. The take home message here is that the capitalisation of cryptocurrency is just as important as it’s value. So, next time you’re tirelessly browsing the markets, remember to bear market cap changes in mind and use this to help inform your own research, in turn, helping you become a far better investor.