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?
What is a crypto market cap?
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).
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Top 5 cryptocurrencies by market cap
According to CoinMarketCap, the top five cryptocurrencies ranked by market cap are (as of 13 August 2021):
Bitcoin (BTC) – USD$830.06 billion
Ethereum (ETH) – USD$365.87 billion
Binance Coin (BNB) – USD$66.09 billion
Cardano (ADA) – USD$63.11 billion
Tether (USDT) – USD$62.98 billion
The importance of crypto market caps
Often market cap is used as a benchmark that can provide an indication of the popularity or desirability of a coin or token.
Most cryptocurrencies are classified by their market cap in the following three categories:
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).
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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.