What does it mean for investors if the crypto market cap increases?
For starters, crypto is still too young to effectively use the market cap as a measure, there simply isn’t enough historical data.
This year, there is a growing interest in cryptocurrencies besides Bitcoin and Ethereum. Following the recent report from CoinGecko that the total market capitalization of cryptocurrencies is now $3 trillion, some would ask, “what does that mean if it increases? Is that good?”
It seems like a sudden growth in just a few months. The gain in momentum began at the beginning of 2020 when many western institutions began investing in this new asset class. Blockchain technology has attracted attention from companies such as Facebook, PayPal, Visa, Mastercard, big financial institutions, and even family institutions that invest their money in it as a hedge against traditional investments. As these Wall Street giants come in to support the crypto adoption, I believe that we are still at the beginning of a major change.
In my opinion, the last quarter has seen the largest number of projects added to Decentralized Finance (DeFi). Not just that, but the non-fungible token (NFT) marketplace has also taken the world by storm. With more NFTs being created, the market has become more enthusiastic about Decentralized Finance protocols. As a result, these factors are driving up the market cap of cryptocurrencies.
Stock Market Cap vs Crypto Market Cap
While market capitalization is a crucial factor for investors in the stock market, it’s not quite the same for crypto investors. Stock market capitalization and the total value of a company’s shares of stock — can help investors build and maintain a balanced investment portfolio. However, experts say that those rules aren’t necessarily applicable to crypto investors.
As an example, Bitcoin’s market capitalization is found by multiplying 18 billion coins into Bitcoin’s current price at the time. The value of Bitcoin’s market capitalization fluctuates as its price fluctuates. During the past few weeks, Bitcoin has fluctuated from $55,000 to $65,000, resulting in a significant range in market capitalization:
$55,000 x 18.8 million = $1.034 trillion
$60,000 x 18.8 million = $1.128 trillion
$65,000 x 18.8 million = $1.222 trillion
Here’s how Ethereum compares to Bitcoin in terms of market capitalization: At a price of $4,500 and a circulation of about 117 million, Ethereum has a market capitalization of $526.5 billion. Though Ethereum has many more coins in circulation, Bitcoin’s value makes its market capitalization larger.
Other Source of Market Cap Rise: AltCoins
Several altcoins have also been rallying, contributing to the overall growth in the crypto market cap. For instance, Ethereum, Binance Coin, Polkadot, and Solana along with meme coins such as Shiba Inu and Dogecoin have jumped a range of 10%-35% in the last 7 days.
Although some of these meme coins are extremely difficult to predict, not all of them are bad. They make sense just like Axie Infinity, which is a legit crypto-based game where people earn money by playing video games. The point is, investors are not just investing in Bitcoin, they are also investing in crypto-based games. More so, non-crypto venture capital firms are also getting into it. Not to mention the recent $93 million SoftBank investment in Sandbox — an NFT gaming startup.
Final Words: Why Does it Matter to Investors?
Knowing the crypto market cap might be interesting if you wish to know the scope or potential of a certain token, but it shouldn’t be a big factor in your investment decisions compared to when you’re deciding to buy stocks. In crypto, it’s a completely different world.
While market capitalization has a more limited application with investing in crypto, there is one way it can actually help the way you invest in BTC, ETH, and others. It’s important to remember that because crypto prices fluctuate so dramatically, the market cap is constantly changing. Because of this fluctuation, along with the possibility of the market dropping entirely, experts also recommend keeping your crypto investment limited. This means, “only invest in what you are fine to lose.”
TEAM ALPEX Global