What is the Market Cap?

Know what the market cap or market capitalization is, how this value is calculated and what relationship it has with the popularity and growth of a cryptocurrency throughout the community.

SSurely at some point you will have written it as “market coin cup” or “market cup”, but the correct form of this concept is “market cap”, which in Spanish is market capitalization. The market cap or market capitalization is an indicator that allows us to measure and follow the market value of a cryptocurrency. In general, the higher the capitalization, the more presence this cryptocurrency has in the entire ecosystem.

After all, the greater the capitalization, the more relevant and the greater the use of the cryptocurrency, which is why it can be considered one of the most important indicators when classifying cryptocurrencies.

How is the market cap calculated?

Calculating the market cap or market capitalization is something quite simple to do. In traditional markets, market capitalization can be found by taking into account the value of one share of a company and multiplying that value by the total number of shares owned by the company. That way you can know the market cap of the company. So, for example, if a company has 100 thousand shares and each of them is worth $23,5, then the capitalization of that company is a total of $2.350.000.

Well, this is precisely what is repeated in the world of cryptocurrencies. Only, instead of stocks, in the crypto world you take the value of the cryptocurrency and multiply it by the number of coins that are in circulation. So we can define a simple formula to calculate the market cap:

Let's do a quick example to understand this point:

Bitcoin It has a maximum issue of 21 million coins, but at the moment, the currency is only 19.098.675 BTC. Taking this value and the price of BTC ($23.150,86 x BTC) then, we can calculate the Bitcoin market cap up to that point:

A fact that is very similar to what can be seen on websites such as CoinMarketCap o CoinGecko:

Now, why is the value different on both websites? This happens because the source of information (the one that tells us the number of coins in circulation and their price) can vary slightly, giving rise to these small differences. In any case, the nature of Bitcoin does not change, whose issue will never exceed 21 million coins and which, following this example, allows us to identify another concept related to the market cap.

Diluted Market Cap, a concept applicable to cryptocurrencies

The previous example of calculating the market cap is called "circulating market cap" and it is easy to understand why this name is given, since the market cap we are calculating only takes into account the cryptocurrencies released and that can circulate among users. of the cryptocurrency But what happens if we measure the market capitalization of all its issuance? Well, that is possible, and in that case we are facing what is known as “diluted market cap”.

This concept is nothing more than the market cap of the entire issuance of a cryptocurrency and is calculated using the following formulation:

An important point of this concept is that it only applies to those cryptocurrencies for which we know the total emission (that is, they are deflationary) because if they do not have a known limit, we cannot calculate this value. Let's see an example of this case:

BTC has a total issuance of 21 million coins, in that case, your Diluted Market Cap would be:

In Bitcoin, knowing this information is easy, but the same is not true of Ethereum, since this cryptocurrency is inflationary and its total emission is infinite, so this value is not known exactly.

Market Cap and the popularity of a cryptocurrency

At this point, a fairly clear relationship can be drawn between the popularity of a cryptocurrency and its market cap. Remember that as a cryptocurrency is accepted and used, the relationship between demand and supply begins to grow, which causes the value in the markets to fluctuate.

If the cryptocurrency is widely used and has a sustained demand, its value grows and when this value is multiplied with its currency, then we have an increase in its market cap. The opposite is also possible, and that allows us to say that there is clearly a relationship between the popularity of a cryptocurrency and its market cap.

In fact, the relationship is so important that many cryptocurrency on-chain analysts closely follow the growth or decrease of the market cap of a cryptocurrency, in order to identify relevant events to carry out their trading operations. This is because large-cap cryptocurrencies are generally considered safe investments and therefore a good investment target. So you can clearly see the relationship between market cap and the popularity of cryptocurrencies.