What is market cap?
To develop an investment strategy to help you pursue long-term financial goals, understanding and studying the relationship between company size, return potential, and risk is very important. This knowledge will help you create an enhanced balanced stock portfolio based on ‘market cap’. Market cap stands for market capitalization. It is the average valuation of a company based on its current share price and the total number of its outstanding stocks and is an important indicator of a company’s size. In cryptocurrency, it is the total value of all the coins that have been mined. In simpler terms, it is the real price of the cryptocurrency. After understanding what market cap is, you must understand the importance of market cap in cryptocurrency.
What is the importance of market cap in cryptocurrency?
As stated before, the market cap is the total value of all of the company’s share stocks. But, why does it stand to be so important? What exactly is the importance of market cap in cryptocurrency? The market cap allows crypto investors to understand and compare the sizes of various cryptocurrencies. It measures a crypto’s worth on the open market, and also the market’s perception of its prospects, as it reflects what the investors are willing to pay for the crypto’s stock.
The market cap divides the cryptocurrencies into three different categories:
- Large-cap crypto: These are crypto worth about 10 billion dollars or more. They are usually crypto which has been around for a long time. They often have a reputation for consistency in return payment and steady growth. These are considered the least risky and the most stable crypto to invest in. Their movements are often scrutinized by the media as the change in their prices influences the stock market greatly as their total contributions to the market as a whole is a lot. However, a disadvantage of these can be that the growth potential of these stocks is also low. Some examples of large-cap crypto are- Bitcoin and Ethereum.
- Mid-cap crypto: The market value of these crypto lies between 1 billion dollars and 10 billion dollars. Typically, these are established crypto within industries experiencing or expected to experience rapid growth. These crypto are usually in the process of expanding and increasing market share and in the process of improving their overall competitiveness in the market. The process of their growth usually indicates whether the crypto lives up to its full potential or not. Mid-cap crypto generally offers more growth potential than large-cap crypto and possibly less risk than small-cap crypto. An example of mid-cap crypto is Solana.
- Small-cap crypto: Crypto with a market value below 3 billion dollars is referred to as small-cap crypto. These crypto are usually younger crypto that serves niche markets. They are considered to be the most aggressive and higher-risk investments owing to their age, the markets that they serve, and their popularity. They have fewer resources and tend to be relatively more sensitive to economic downturns. They are also more vulnerable to the intense competition and uncertain characteristics of untried, burgeoning markets. They tend to offer significant growth potential to long-term investors who are open to volatile stock price swings taking place in the short term.
If you are looking to trade in cryptocurrency, it is important to look at market capital to get an idea of how much further their value can grow. The shares of some crypto might look cheaper than others but you may not gain much from them. In the same manner, a higher value of an individual stock does not indicate that it is more valuable crypto.