CryptoCurrency market capitalization – what is it and how to calculate it?
When working with cryptocurrencies, all investors are bound to come across the concept of “market capitalization”. This economic term has its own particular qualities in the cryptocurrency sphere, and anyone who is involved has to know them.
About the concept of "capitalization" in the cryptocurrency market
Market capitalization is the total market (stock) value of all issued shares. In the case of cryptocurrencies, market capitalization is the total value of all issued coins.
We can highlight the total capitalization of all cryptocurrencies, as well as the capitalization of a single coin.
To calculate the total market capitalization, you need to sum up the capitalization of all individual cryptocurrencies. For example, at the time of writing this article, the total capitalization is $126.8 billion, and there are more than cryptocurrencies in the world (data from coinmarketcap.com).
To calculate the capitalization of a separate cryptocurrency, you need to multiply the total number of issued coins by the value of one coin.
Services where you can check the capitalization and cryptocurrency rating
The most popular rating service is coinmarketcap.com. Here they publish information about cryptocurrency, relying on the official sites of the project. There are other services, such as CoinGecko or Cryptonator. The sort of selection and structuring process of information on all rating sites is about the same.
Features of the capitalization index in the crypto market
Putting money in cryptocurrency, the investor buys coins of a specific project and not a share in the entire market. Therefore, he is usually interested in the capitalization of a particular coin. Nevertheless, it is not necessary to attach great importance to this criterion in technical analysis.
First, companies offer not all issued coins for open sale. Teams always leaves a certain number of tokens for their own project purposes. For example, when launching the Neo project, 100 million NEO tokens were released. 50 million coins were sold during the ICO, and another 50 million were left for the project or frozen until autumn 2017. In addition, not all tokens can be bought out, and some investors may put their coins on the back burner and not trade them.
Secondly, one should not forget about hodlers – people who buy cryptocurrency for long-term storage. These people become the main support group when the currency value falls by more than 25% per day. With sharp drops in the exchange rate, hodlers usually buy a large amount of coins, put them in a secluded spot and begin to wait again. That is, in fact, most of the coins simply will not trade on the exchange.
Third, the result of the capitalization calculation is approximate for some cryptocurrencies. For instance, the official number of Bitcoin units is 21 million coins. In reality, the amount of coins is much smaller, because a large number of them are lost.
Therefore, investors should follow the changes in market capitalization on such rating sites as coinmarketcap only to be familiar with the general picture. For a technical analysis of a specific cryptocurrency, it is best to use special tool sets that are provided to traders on the exchanges.