How to Calculate Market Capitalization of a Cryptocurrency?

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Many experts use the term market capitalization when evaluating the growth of the crypto industry. You may hear the term as a criterion used to rank cryptocurrency networks as well. 

What is crypto market capitalization? Understanding a coin’s market cap will help you trace its development and prominence in the market. It can also assist you in making effective investment decisions in the crypto sector. Crypto market capitalization is a crucial metric, like Fundamental Analysis and Technical Analysis, in a conventional stock market.

Are you still wondering what crypto market capitalization is? In this guide, Liquid has explained what does crypto market capitalization means.

What Is Crypto Market Capitalization?

Market capitalization is a metric used to understand the current market value of an asset. In the context of cryptocurrencies, crypto market capitalization refers to the present value of the cryptocurrency network. You can calculate the market capitalization of an individual cryptocurrency as well as the industry as a whole. 

In both cases, a popular short-form, market cap, is used to denote the metrics. Many experts say that crypto market capitalization allows them to understand the development and performance of a crypto asset from a broader perspective.

Market capitalization is not a concept exclusive to the crypto sector. You can find its use in traditional stock markets as well. Nevertheless, you can spot many differences between these two calculations.

How to Calculate Individual Crypto Market Cap?

Individual crypto market cap refers to the market capitalization of a particular cryptocurrency or blockchain project. 

First, there is Bitcoin (BTC), the most popular cryptocurrency coin globally. At the time of writing, the crypto market cap of Bitcoin is $1,060,527,958,492. Meaning, the total valuation of Bitcoin has already surpassed the $1 Trillion mark.

Taking second place is Ethereum (ETH), which has a market capitalization of $208,472,933,290. While it is not as big as Bitcoin, the Ethereum project is one of the most critical projects in the crypto sector.

How to calculate the market cap of any cryptocurrency?

Crypto market capitalization = supply of crypto assets in circulation x the value of an individual unit.

Let’s try to calculate the market cap of Litecoin, a popular alternative to Bitcoin. At the time of writing the blog, one Litecoin costs $201.5. It is believed that there are 66,643,162 Litecoins currently in circulation. Therefore, the market cap of Litecoin would be the cost of a single Litecoin multiplied by the total number of Litecoins in circulation.

When multiplying these numbers, we get the total figure of Litecoin market cap: $13,428,862,695.

This number is equal to the total market value of the cryptocurrency network. When the market cap of one cryptocurrency goes higher, we can understand the network is on the path to success. For instance, during the past two years, the market cap of Bitcoin saw a rise from $68+ billion to $1+ trillion.

How To Calculate Total Crypto Market Cap?

Total crypto market capitalization refers to the market capitalization of all assets in the crypto industry.

The total crypto market capitalization is the gross total of all cryptocurrency assets, such as Bitcoin, Ethereum, altcoins, digital tokens, stablecoins, and other major/minor crypto assets. If something is part of the crypto industry, its market value will contribute to the total crypto market capitalization.

As you can expect, this is an always-changing figure. Even a slight change in the value of a cryptocurrency can affect the total crypto market capitalization. At the time of writing, the entire crypto market capitalization is $1,724,724,530,687. However, by the time you read this article, the figure might be quite different.

Total crypto market capitalization is an effective metric to understand how the entire industry performs. If the numbers are going up, more people/businesses are moving towards crypto-based solutions, thereby increasing the value of crypto assets. And vice versa.

Are There Any Issues With Crypto Market Capitalization?

Experts say that crypto market capitalization is not a perfect way to analyze the performance of a unique crypto asset or the industry. 

First, some analysts believe that there is a lack of transparency in the information about crypto projects. The disparity in the number of coins in circulation or the current price can impact the final figure we conceive as the market cap. Therefore, a trustworthy and transparent data source becomes integral to getting crypto market capitalization numbers on track.

Second, experts claim that persons with biased interests may manipulate the market cap of cryptocurrency projects without much effort. The crypto industry's history has already seen such manipulation attempts designed to attract more customers by promoting the market cap alone. 

The possibility of such manipulation is a reason why some experts do not entirely trust crypto market capitalization.

The inherent volatility of the cryptocurrency industry has also made people a little cautious about the metrics.

Should I Keep An Eye on Crypto Market Capitalization?

The short answer: Yes.

The long answer: Yes, the crypto market capitalization metric can help you make efficient market decisions. More importantly, these market cap numbers will tell us how quickly or intensely a crypto asset is growing.

Considering that the metric gives equal importance to overall circulation and an individual coin’s value, the numbers represent the said project's adoption rates, demand, and popularity. As long as the sources report the correct numbers, the total crypto market cap will reflect the industry's current status.

The Bottom Line

While the crypto market cap is indeed an important figure, it is not enough to make the right investment decisions. You should combine this data with other insights and metrics to analyze where the crypto market is going.

Nevertheless, if other metrics say that an asset is worth investing in, an increasing market cap is a sufficient signal to back up your decision.

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