How Bitcoin and Cryptocurrency Market Caps Work
Over the past decade, Bitcoin (BTC) has proven itself to be a good investment for many people.
Some people often advise new traders to use traditional investing techniques,
But they did not consider how these strategies should adjust accordingly for the Bitcoin market, which includes market capitalization.
The basic concept of market capitalization
In traditional finance, market capitalization is defined as the total value of a company’s outstanding shares. That is, market capitalization combines the value of each share of stock with the total number of shares in circulation to describe the value of a company.
Go to Paxful’s Official Website
What is market capitalization in cryptocurrencies?
To understand the concept of market capitalization in cryptocurrencies, especially the Bitcoin market, we just need to replace the word company with BTC above. Here, market capitalization describes the total value of Bitcoin in the crypto market.
Still very similar, right?
This value changes depending on how widely accepted or mature Bitcoin is. As of March 24, 2022, Bitcoin’s market cap is $818,218,999,274.
Bitcoin was the first cryptocurrency to come out, so it’s no surprise that its market cap is so high. Additionally, out of the 21,000,000 Bitcoin total, 18,925,000 BTC have been mined (as of March 24, 2022), which also gives us a glimpse of the currency’s usability.
Start investing in Bitcoin on Paxful
How is the market capitalization of Bitcoin determined?
Market capitalization is determined by formula. It might sound complicated, but don’t worry, the calculation is very simple. The formula for Bitcoin’s market capitalization is as follows:
Go to Paxful’s Official Website
Currency price x amount of currency in circulation
The resulting value is the market cap of BTC. Since Bitcoin is a public, decentralized currency, the above information should be easy for you to find.
It’s a simple formula, but very important for Bitcoin enthusiasts. With this formula, users can easily observe and determine the market value of a certain currency, which is convenient for making investment decisions.
Why do you need to know the market cap of BTC?
Everyone knows that Bitcoin is more than just an investment tool. Still, we often hear things like “investing in bitcoin” because it really is a great way to make money.
In traditional stock markets, market capitalization can be used to categorize possible investments (eg, small cap, mid cap, large cap ). Investors can use this information to diversify their investments into different categories, making the most of their time and capital.
This is the similarity between traditional market capitalization and Bitcoin market capitalization. But for digital currencies, market cap has a slightly different meaning, as cryptocurrencies like Bitcoin are still in their infancy. This makes it difficult to make very accurate predictions, so Bitcoin’s market cap weight is relatively low when it comes to the final decision.
While it’s not necessarily an accurate predictor, knowing market capitalization can show traders a currency’s potential in terms of value. For example, large currencies such as BTC are considered safe investments and are generally viewed as conservative strategies. On the other hand, mid-cap currencies are riskier but have greater potential for growth.
Apply market capitalization knowledge to investing
We mentioned earlier that Bitcoin has been around for a short time and cannot be predicted accurately. In the stock market, market capitalization can more accurately predict the value of stocks, relatively speaking, the market capitalization of cryptocurrencies is to let users know how much risk or profit may be faced.
Therefore, it is very suitable for users who are looking for investment opportunities, but are not familiar with the options in front of them.
By categorizing the available cryptocurrencies into different risk categories, traders can choose how to allocate their investments, maximizing the potential for winning profits.
This approach, commonly referred to as a weighted market capitalization strategy, allocates investments in proportion to the market capitalization of the currency. For example, if you are buying two currencies, BTC and ETH, you can put more of your investment in BTC as it is a safer investment. A smaller percentage of your investment in ETH will retain your earning potential while minimizing the risks associated with using this less mature token.
All in all, market cap is a very useful tool, but it’s not the only tool you should totally rely on. Cryptocurrencies are still new, so understanding market capitalization is also limited in the usefulness of investing. Don’t let it decide for you, but don’t forget to take it into account either.
Go to Paxful’s Official Website
Do your research before investing
The point of investing is to make a profit, and all these tools and formulas are ways to make it easier for you. For cryptocurrencies, the most important thing is to do your own research.
This is the best way to make sure you understand the investment you’re starting with.
With cryptocurrencies, the most important thing is to give yourself an edge. Understanding how market capitalization works is just one of the steps in ensuring a profitable investment. Only by staying informed about the latest market developments and ready to start your own cryptocurrency trading journey can you apply what you have learned.
Please click "Introduction of Paxful", if you want to know the details and the company information of Paxful.
Comment by Hans
April 24, 2024
as I am trading here various assets, for me it's the most important feature. i mean, flexibility in tradable markets. i alternate trading styles, meaning that sometimes I trad...