The Crypto Market Cap

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Contributor, Benzinga
August 26, 2020

new eyes to the cryptocurrency market. Crypto was a significant part of the discussion involving the debasement of the dollar and Federal Reserve intervention in the markets. For the first time, the crypto market was seen as a viable hedge against dollar inflation. Institutional investors that once denounced the entire market as a scam were frontrunners in the race to acquire not only more crypto but the startup companies that had formed its market infrastructure.

One of the most telling indicators of growth in the crypto sector is the total crypto market cap. As investors build value in a market holistically, all market participants usually experience the expansion. As a way of measuring the total value of a market, the market cap serves as a barometer of a market’s maturity, risk and reward potential and, of course, total size.

The market cap for crypto mirrors the market cap for securities in many ways, but there are some important differences, which will be explained here.

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Crypto Market Cap

The crypto market cap is a measurement of the relative size of the crypto market. It is calculated by adding together the market caps of each individual coin within the market. The market cap of each individual coin is calculated by multiplying the current price per coin/token with the total number of them that are in circulation. For instance, bitcoin that has yet to be mined is not included in bitcoin’s market cap, although we know they will exist in the future.

Because crypto is a decentralized market, every exchange can determine the coins they will include in the crypto market cap. You will get a different total market cap from CoinGecko than you will from CoinMarketCap because CoinGecko currently keeps up with 5,847 coins while CoinMarketCap follows 6,523. The process for getting listed on these influential sites is unique to each site.

Literally anyone can create an exchange in the crypto space, but most of them do not attract enough attention to be influential. Though there is no central authority pegging a market cap or coin pricing to any standard, the market itself tends to determine limits on volatility. Experts believe that authority on the subject will eventually centralize, although they are uncertain of how that authority will exist and how many perspectives it will include. 

For instance, many casual investors assume the Google listed price for Bitcoin is the true price, though Google sources that information from Coinbase. The popular finance platform for Yahoo sources its bitcoin price from CoinMarketCap. These prices are different even if you search for the real-time price at the same time.

Volatility in the Market Cap

Coins and tokens can and do trade for different prices on different exchanges. This is similar to the securities market, although crypto exchanges can have a price spread that is quite noticeable. Because the individual price of each currency affects the market cap, differences in the pricing cause volatility in the number each exchange reports.

Denominating the Market Cap

The crypto market cap can be denominated in fiat currency because bitcoin has been informally connected to a dollar value. Much of the volatility of bitcoin comes from the fact that there is no centralized standard for the link between crypto and fiat currencies. As a result, most crypto experts prefer to express the crypto market cap denominated through bitcoin.

As the largest cryptocurrency in the world, bitcoin tends to influence the volatility of the entire market. Most large crypto exchanges will include a metric known as “dominance” showcasing how much of the market cap top coins are representative of. This metric is usually associated with bitcoin and varies based upon the number of coins that are being tracked on an exchange. For instance, CoinGecko records BTC dominance of 57.6% while CoinMarketCap has the same metric at 59.2%.

Does Market Cap Matter in Cryptocurrency?

As a relatively young market, crypto does not have a history of data to provide analysts with value justifications. As a result, many theories about the future value of top coins and the market as a whole rely on comparisons of the current crypto market cap against more established industries. 

The total market cap gives a general indication of the popularity of the idea of crypto. For instance, the market cap during the 2017 mania reached almost $900 billion according to CoinGecko. That peak coincided with the highest instance of Google searches for crypto-related terms on record and the most aggressive movement of investors into the crypto space.

Calculating the Cryptocurrency Market Cap

If you wanted to calculate the crypto market cap through the CoinMarketCap exchange, you would start by calculating the market caps of each coin the exchange includes. For the total market cap, you would add all of these values together.

Highest Crypto Market Cap

The figures for the highest market cap differ depending on who you ask because there is no centralized authority. Most crypto enthusiasts and experts would likely agree that the highest total market cap for the entire market has passed $800 billion but has yet to reach $1 trillion.

Trade Cryptocurrency 

Safely and efficiently trading cryptocurrency depends a great deal on the trading platform you choose. You can hold a portfolio on many platforms, as many of them double as custodial platforms. Keep in mind that you may see different prices for the same asset on different platforms. 

This actually offers an opportunity for arbitrage or profiting from the difference in pricing on different exchanges. This is an advanced technique, however, and it is not always possible because of the relatively high transaction fees associated with most cryptocurrency exchanges.

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A Wide Open Market

Although the total crypto market cap serves as a marker for popularity, influence and integration, there is another important takeaway from its volatility. The obvious differences in how major exchanges produce their number points to just how much room there is in the world of crypto for an authoritative standard. Although the prevailing buzzword around crypto is decentralization, this is not what the market seems to be doing.

Most cryptocurrencies, including major currencies like Litecoin and Ripple, are far less decentralized than they let on. The emotionless technology behind crypto certainly has the potential for decentralization. The people who control it — that’s a different story altogether. The psychology of major developers and users of crypto seems to default to centralization. Most people flock to just a few exchanges. Most people trade only the top coins. And with traditional banks and institutional investors entering the space with big money, many retail investors are preparing to exit crypto and move right back into fiat once crypto becomes “worth” more.

Where will the crypto market go from here? The market cap may give us technical indicators, but it is also quite political. Pay close attention to it to determine how people relate to finances in the future.

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