Market Capitalization in Traditional Finance
Market Capitalization, or Market Cap, is an idea borrowed from traditional financial markets. The market cap of a publicly traded company is simple to calculate: you multiply the total number of outstanding shares by the current price of each share. This is what the whole company could be sold for in an imaginary, idealized stock market with constant demand. Notably this does not take into account factors like the company’s outstanding debt. In traditional finance, market cap serves as a useful tool for many investors. Alongside other indicators, it is used to assess a firm’s financial performance when compared to firms of different sizes.
Market Capitalization in Crypto
In the world of crypto, market cap has a related but subtly different definition. We determine crypto market cap by multiplying the market price of a given crypto asset by the total number of tokens outstanding. Market cap can provide a rough snapshot of the value that investors place on not just a given crypto asset, but the ecosystem associated with it. Thanks to the transparency of blockchain technology, market capitalization can be calculated for a wide range of crypto projects, allowing for aggregation and comparison across sectors.
For example, we’ve compared Bitcoin’s market cap with the total value of the physical gold market as a way to assess Bitcoin as a digital reserve asset. We’ve established a relationship between the market cap of crypto assets and the growth of their user bases to quantify the financial impact of network effects. We’ve used market cap to compare the prominence of stablecoins, a type of crypto asset without direct parallel in equity markets, as a way to assess the smart contract ecosystems that they support. There are many ways to find market capitalization and related data about crypto assets, but one of our team’s favorites for quick reference is CoinMarketCap.
Investments in digital assets are speculative investments that involve high degrees of risk, including a partial or total loss of invested funds. Investments in digital assets are not suitable for any investor that cannot afford loss of the entire investment.
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