The cryptocurrency world is full of surprises and turns. People who are new or who want to invest in this world always find it difficult to understand the market cap of cryptocurrencies. All cryptocurrencies are capped to specific quantities. There are few cryptocurrencies which are not densely capped and have an infinite accumulation. On the other hand, there are also coins (ICO) that are bound by a company which then be circulated in the market (eg: Ripple XRP). A coin’s stock is one of the most significant constituents that influence the market cap and it is the most misinterpreted metric by many people.
Cryptocurrency Market Capitalization or Cryptocurrency Market Cap is a valuable metric to understand the true value of cryptocurrency. If you visit coinmarketcap, then you will recognize the coins listed in the descending order of their market cap.
How are the prices determined for the different cryptocurrencies?
The value for every particular market pair is computed by holding the unconverted amount listed undeviatingly from the exchange and turning it to USD by applying the exchange’s enduring reference prices.
Let (X) be the value of LTC/BTC listed undeviatingly from the exchange.
Let (Y) be the last identified price of BTC in USD.
Let (Z) be the obtained value listed for the market pair.
For this example, let (X) = 0.01 BTC / 1 LTC and let (Y) = 10,000 USD / 1 BTC.
Z = X * Y
Z = (0.01 BTC / 1 LTC) * (10,000 USD / 1 BTC) = 100 USD / 1 LTC
Therefore, the obtained price for LTC/BTC on this particular market pair is $100 USD.
Circulating supply is the number of coins or tokens that’s been excavated or formed. It’s the rough amount that’s currently in hands and distributing in the market. The market capitalization is one method to estimate the corresponding size of a cryptocurrency. It’s computed by multiplying the value by the circulating supply.
Market Cap = Price X Circulating Supply
The value of any cryptocurrency is a volume-weighted mean of market pair values for the cryptocurrency. The greater the percentage of volume supplied from the combination, the more impact it has on the medium price. The justification for applying a weighted proportion is because in common, markets with greater volume have greater liquidity and are less inclined to price vacillations.
A coin is devised in such a method that it should never surpass its max supply. However, the mystery is will a coin touch its max supply and when? Let’s take Bitcoin as an illustration. It is predicted that the nearby year 2140 BTC will strike its highest supply. Bitcoin has regulated supply and its block reward reduces every 4 years. It is anticipated by the year 2032 99% of the Bitcoins will be excavated. To mine just that last 1% it needs 100 years.
Circulating Supply is the soundest estimate of the number of coins that are flowing in the market. The circulating supply is a much reliable metric than Total Supply for defining the market capitalization – Coins that are secured, stored, or not ready to be exchanged on the public market, are coins that cannot influence the price and thus should not be permitted to influence the market capitalization as well. The process of applying the circulating supply is comparable with the process of applying public float to define the market capitalization of companies in conventional investing.
The number of coins that is now in circulation + newly mined coins is the Total supply. Total supply is the cumulative number of coins that is currently in presence however not all are flowing. For many analyses, there are coins that are stored or secured and are not traded for the public market which doesn’t move the coin value. Total supply is usually equivalent to or higher than the circulating supply.
Disclaimer: This information should not be interpreted as an endorsement of any cryptocurrency. It is not a recommendation to trade. The crypto market is full of surprises and overhyped assets. Do your research before buying anything. Do not invest more than you can afford to lose.