Market capitalization is a vital metric for every cryptocurrency or any other asset. It refers to the total value of all the units of a specific cryptocurrency. This metric tells a lot about a token, including its future prospects. We’ll explain market capitalization and what you need to know about it.
What Is Market Capitalization?
It is the total value of all units of a specific asset. This metric is most commonly used for publicly traded companies but applies to cryptocurrencies and other assets.
Market cap or value, is the price of an asset multiplied by all units of that asset. For example, if Token A costs $10 apiece, and there are 400 units in circulation, its total value becomes $10 x 400, giving $4,000.
This metric is the most important for every cryptocurrency, not price. A token can have a higher price but a lesser total value than another token. For example, Token B costs $30 with 100 units in circulation. Its total capitalization is $30 x 100, giving $3,000. Token B is more expensive than A yet has a lower value.
Classifications Of Digital Tokens According to Market Capitalization
There are three main categories:
- Large-cap: Tokens with a total capitalization of over $10 billion. Relatively few tokens fall under this category, including Bitcoin, Ethereum, USDT, BNB, XRP, and USDC. These tokens have demonstrated a long track record of growth and have high liquidity, which makes them easy to trade.
- Mid-cap: These are tokens valued between $1 and $10 billion. A few dozen tokens fall under this category, including popular ones like Solana, Litecoin, Chainlink, Polkadot, etc. These coins have more potential upside but have higher risk than large-cap coins.
- Small-cap: These are coins worth less than $1 billion. The majority of coins fall under this category. This category is highly volatile and susceptible to market swings.
Why Is Market Capitalization Important?
The market cap of crypto is important because it tells you a lot about the specific token. It indicates how safe it is to buy and hold in your portfolio. Cryptocurrencies with large values are more stable and less likely to swing in response to market conditions. They have less upside, but the stability is the tradeoff.
Mid-cap coins have higher upsides than large-cap ones but are more volatile. They’re more likely to fall along with the broader market. Investors accept the high risk for a higher upside.
Small-cap coins have the highest risks. They can easily lose double-digit percentages of their value. Similarly, they have the highest upside potential.
What Are The Top Coins By Market Capitalization?
They are
- Bitcoin (BTC): The world’s first mainstream cryptocurrency and the largest, with a value of over $500 billion (as of writing).
- Ethereum (ETH): The second-most popular token worldwide, with a total value of around $200 billion (as of writing). Ethereum has the largest ecosystem of third-party developers and decentralized apps.
- Tether (USDT): A stablecoin pegged to the U.S. Dollar. This token is designed to retain its value and not rise or fall. It has a market cap of over $80 billion.
- Binance Coin (BNB): The native token of Binance, the world’s most popular cryptocurrency exchange.
- Ripple (XRP): A popular cryptocurrency designed for remittances and currency exchange. Unlike most other coins, this coin is centralized, i.e., controlled by the issuing organization.
- USD Coin (USDC): Another stablecoin pegged to the U.S. Dollar.
- Solana (SOL): A proof-of-stake cryptocurrency launched in 2020.
- Cardano (ADA): A decentralized token built for peer-to-peer transactions.
- Dogecoin (DOGE): The world’s first memecoin based on Japanese dog breed.
- Tron (TRX): A decentralized, proof-of-stake token founded in 2018.
