Just like all aspects of the cryptocurrency market, market capitalisations (market caps) can often surge or consequently drop in a day or so.
In April 2021, the total cryptocurrency market cap hit a peak of USD$2.5 trillion, driven by a rally in Ethereum’s token, ether (ETH). This has since descended to USD$1.827 trillion (as of 13 August 2021).
You may still ask, what is a crypto market cap and how does it affect Australian crypto investors?
Just like traditional stock market caps, which are the total dollar value of all the shares of a company’s stock, a crypto market cap is the collective value of the total of all coins or tokens of a cryptocurrency that are currently in circulation.
A crypto market cap is calculated by multiplying the current price of a cryptocurrency unit by the circulating supply of its tokens. It’s important to note that circulating supply is different from total supply. After all, it is only the circulating supply that is available or held on the market right now; while the total supply may include unmined coins or tokens.
For example, if each single unit of a given cryptocurrency is being traded at $20, and the circulating supply is equal to 20,000,000 coins, the market cap for that asset would be $400,000,000.
The higher the market cap of a cryptocurrency, the more dominant it is considered by the market. For this reason, market caps are regarded as the single most important indicator for ranking cryptocurrencies (however, this is often subject to criticism).
According to CoinMarketCap, the top five cryptocurrencies ranked by market cap are (as of 13 August 2021):
Often market cap is used as a benchmark that can provide an indication of the popularity or desirability of a coin or token.
These are cryptocurrencies such as Bitcoin, Ethereum and Dogecoin (DOGE), which are categorised as companies with a market cap over USD$10 billion. Some consider this to indicate these cryptocurrencies could be ‘safer’ crypto investments, as their size and popularity may reduce the levels of volatility.
These cryptocurrencies have market caps between USD$1 billion and USD$10 billion, many of which have been around for a few years. Examples currently include the likes of Litecoin (LTC), Stellar (XLM), and Theta (THETA).
These cryptocurrencies have market caps less than USD$1 billion and are regarded as volatile and higher risk. This is mostly due to their lack of popularity / interest / demand (often because these cryptocurrencies might be new, thus the lack of broader appeal). Examples of small-cap cryptocurrencies include Nexo (NEXO), Basic Attention Token (BAT) and Paxos Standard (PAX).
By comparing market caps, investors can get a better understanding of the popularity and demand of a coin or token and also consider any trends in market cap values over time.
For investors looking to build a diversified crypto portfolio, opting for a mix of different cryptocurrencies with a range of market caps may prove to be a useful approach.
As with all assets, investors are always encouraged to complete thorough research and ensure that their investments are considered in-line with their own risk tolerance and overall investment strategy.
This advice is general and has not taken into account your objectives, financial situation, or needs. It is not personal advice. Consider whether this advice is right for you, having regard to your own objectives, financial situation and needs. You may need financial advice from a suitably qualified adviser. For more information, read Canstar’s Financial Services and Credit Guide (FSCG) and our detailed disclosure. Canstar may receive a fee for referring you to a product provider – for further information, see how we get paid. Payment of fees for ads does not influence our Star Ratings or Awards.
Canstar is a comparison website, not a product issuer, so it’s important to check any product information directly with the provider. Consider the Product Disclosure Statement (PDS), Target Market Determination (TMD) and other applicable product documentation before making a decision to purchase, acquire, invest in or apply for a financial or credit product. Contact the product issuer directly for a copy of the PDS, TMD and other documentation.
Canstar is an information provider and in giving you product information Canstar is not making any suggestion or recommendation about a particular credit product or loan. If you decide to apply for a credit product or loan, you will deal directly with a credit provider, and not with Canstar. Rates and product information should be confirmed with the relevant credit provider. For more information, read the credit provider’s key facts sheet and other applicable loan documentation for that product. Read the Comparison Rate Warning.
The views, opinions, and positions expressed in this piece are the views of the author(s) alone, and do not necessarily reflect the views of Canstar.
All information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall or rise.
Canstar is an information provider and in giving you product information Canstar is not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please refer to the product disclosure statement (PDS) and Canstar’s Financial Services and Credit Guide (FSCG) for more information, and read our detailed disclosure, important notes and liability disclaimer.
Canstar may earn a fee for referrals from its website tables, and from Sponsorship or Promotion of certain products. Fees payable by product providers for referrals and Sponsorship or Promotion may vary between providers, website position, and revenue model. Sponsorship or Promotion fees may be higher than referral fees. Sponsored or Promotion products are clearly disclosed as such on website pages. They may appear in a number of areas of the website such as in comparison tables, on hub pages and in articles. Sponsored or Promotion products may be displayed in a fixed position in a table, regardless of the product's rating, price or other attributes. The table position of a Sponsored or Promoted product does not indicate any ranking or rating by Canstar. For more information please see How We Get Paid.
Any advice provided on this website is general and has not taken into account your objectives, financial situation or needs. Consider whether this advice is right for you. Consider the Product Disclosure Statement and Target Market Determination before making a purchase decision. Canstar provides an information service. It is not a credit provider, and in giving you information about credit products Canstar is not making any suggestion or recommendation to you about a particular credit product. Research provided by Canstar Research AFSL and Australian Credit Licence No. 437917. You must not reproduce, transmit, disseminate, sell, or publish information on this website without prior written permission from Canstar.