Lesson 5: What Is Crypto Market Cap?

Welcome to the fifth lesson in Kriptomat Academy’s guide to fundamental investment concepts. In this lesson, we’ll focus on market capitalization. 

We can begin by examining some key terms.

• In the fiat investing world, capitalization refers to the total value of a company’s shares as listed on a stock exchange.
  
• Capitalization tells us how big the company is. If a company has issued 1 million shares of stock and each is with 1,000 euros, the company is worth 1 billion euros.
  
• It is 10 times bigger than a company that issued 1 million stocks if the company’s shares are trading for 100 euros.
  
• Stock is a way to allow public ownership of a company. If a buyer were to pay 1,000 euros per share to every stockholder, then the buyer would own 100% of the stock – and would own the company. That’s why capitalization is equivalent to the company’s value.

Cryptocurrencies are not public companies and it is impossible to buy shares on stock exchanges. However, the crypto community compares the size of different cryptos with a similar calculation.

• For a cryptocurrency, market cap is the number of coins or tokens that have been issued multiplied by the current price per token.
  
• If a buyer were to pay the current crypto price for each coin or token held by everyone who owns that crypto, then the buyer would own 100% of the crypto.
  
• That’s why market cap is a useful measure for comparing the sizes of different crypto user bases.

Bitcoin has always had the highest crypto market cap since it was launched

• At the crypto market peak in November 2021, Bitcoin’s market cap was more than 1 trillion euros.
  
• Although more than 20,000 cryptocurrencies have been launched, Bitcoin accounts for 37.41% of the crypto market as a whole.
  
• Ethereum is the most widely used crypto, but its price is significantly lower than Bitcoin’s. That accounts for its market cap of about 165 billion euros, or about 16.4% of the crypto market.

Let’s try a simple calculation.

• Let’s say that on a particular day there are 19.2 million Bitcoins in circulation. (The current figure is always available on the Kriptomat Bitcoin price page.)
  
• For the purposes of this calculation, we’ll say that each Bitcoin is worth 30,000 euros.
  
• That would make Bitcoin’s market capitalization 19.2 million times 30,000, or 576 billion euros.

Market cap can help guide your investments

• In the fiat world, huge internet companies tend to have the largest market caps. But before that, trading markets were dominated by a list of large, well-managed companies with stable prices and predictable returns on investment.

• In the crypto market, the tokens with the highest market cap tend to be older, more established, and more widely used. Their price gains and losses are dramatic, but tend to be slightly milder than the gains of newer, smaller, less established cryptocurrencies.
  
• This means that market cap can serve as a guide when building a diversification strategy for your portfolio. You might decide that you want some popular cryptos like Bitcoin and Ethereum – established coins that no longer show signs that their prices will outgain the market – and innovative new small-cap cryptos that are pioneering new niches that may turn out to be very profitable.

Figures are available on the total amounts invested in NFT collections and the total invested at NFT marketplaces.

• These figures provide a sense of relative size and the average prices paid for NFTs within individual collections.
  
• However, the numbers do not provide information about how much a particular NFT might prove to be worth within the NFT marketplace. Because each NFT is unique (that’s what “non-fungible” means), there is no market cap for any individual token.
  
• Some tokens do provide a sales price history, but that is a different matter entirely.

So – what have we learned?

• Market cap is a measure of how widely a cryptocurrency is used.
• It’s calculated by multiplying the number of issued coins or tokens by the current price.
• A cryptocurrency’s market cap is how much your portfolio would be worth if you owned 100% of the crypto at the current price.

That’s the end of this lesson! Test your understanding and earn points toward a Kriptomat Academy certificate of achievement by taking the test!

What does a company's market cap tell us?

An approximation of annual sales.

Whether or not it is profitable.

Whether the stock price is trending up or down.

The approximate value of the company.

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Which of these is NOT a reason companies issue stock to the public?

Reimburse founders for cash and work during start-up.

Raise cash for operations or acquisitions.

Reduce government and regulatory scrutiny.

Repay early investors.

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Which of these statements is true of Bitcoin and Ethereum?

Bitcoin supports the highest number of transactions and has the highest market cap.

Bitcoin supports the highest number of transactions. Ethereum has the highest market cap.

Ethereum supports the highest number of transactions and has the highest market cap.

Ethereum supports the highest number of transactions. Bitcoin has the highest market cap.

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What is a cryptocurrency's market cap?

A price cap that limits what an exchange can charge for that particular cryptocurrency.

The crypto's current price multiplied by the number of coins or tokens in circulation.

All of the tangible and intangible assets associated with the cryptocurrency and the company or team behind it.

The percentage of the crypto market that is contributed by a particular cryptocurrency.

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What are the crypto world's equivalents of blue chip investments?

Cryptos used in gaming and the metaverse, which are growing quickly.

Non-fungible tokens, whose success cannot be measured with conventional market cap calculations.

Bitcoin and Ethereum, which are widely used older cryptos with established value in the marketplace.

Cryptos associated with Web3 technology.

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