Market capitalization (market cap) is one of the classic financial indicators that came to the sphere of crypto projects from the world of big finance. Cryptocurrency capitalization is a dynamic value. Together with the price of a cryptocurrency and its trading turnover over a certain period of time, it allows us to evaluate the attractiveness of a particular asset for use or investment.

The Calculation and Significance of Crypto Market Capitalization

The concept of crypto capitalization can be labeled as “conditional” due to the specifics of its calculation. Total capitalization is calculated by multiplying the number of issued coins by their current value. The conditionality, in this case, is expressed in the fact that a large number of coins may not participate in trading operations. The most indicative example is 1 million BTC in Satoshi Nakamoto’s accounts that probably will never appear on the market. 

In addition, it’s impossible to assess the real value of cryptocurrency projects because the vast majority of them are not directly related to traditional financial assets, goods, services or means of production. Therefore, the market cap is a relative indicator, which is necessitated by the existence of the crypto market as part of a larger financial market. 

Factors That Affect the Capitalization of Cryptocurrencies

Factors That Affect the Capitalization of Cryptocurrencies

These are the main factors on which the total capitalization of a cryptocurrency depends: 

  1. The current issuance (the total volume of tokens issued).
  2. The current value of a token.

The first indicator can be both dynamic and static. Growing issuance is typical for projects that use mining — the issuance of new coins is a reward for the network’s participants for ensuring its performance. Almost all of the largest cryptocurrencies such as BTC, ETH, LTC and others work under this scheme. Static issuance is characteristic of projects in which a 100% primary issuance has been made. The most famous cryptocurrency issued under this system is XRP from Ripple. The capitalization of such projects depends entirely on the token’s price. 

In turn, the value of coins is subject to two factors: 

  1. Global demand for the asset and the behavior of large traders.
  2. Information about a particular asset and the field as a whole. 

Factors Influenced by Capitalization

Factors Influenced by Capitalization

Among the key factors influenced by capitalization, there are two main ones: 

  1. The level of volatility of the cryptocurrency.
  2. The popularity of the asset in the media.

In the first case, projects with large capitalization are less susceptible to sharp spikes in value due to the actions of market speculators. Thus, for investors, the market cap is one of the indicators of stability, as it is possible in the context of the market’s high volatility in general. 

The major analytical portals, which collect statistics on crypto projects, open to users primarily the TOP of cryptocurrencies. By default, this TOP is formed based on capitalization, so the higher the capitalization of a cryptocurrency, the more recognizable it is and, accordingly, the more attention it attracts. The more attention, the more potential investors, the higher the demand, the higher the price, the higher the capitalization and the more attention. Prices of cryptocurrencies are highly dependent on information factors, and the overall capitalization of a project also plays a vital role in this context.

Author: Mark Wallerstein
#Cryptocurrency