Cryptocurrency capitalization is essential in the crypto world. Read!!!

The concept of capitalization is quite important in the modern economy. It is used to access the financial viability of a particular currency. This is a kind of analysis that makes it clear how large the project is. Not everyone knows, but when compiling Forbes ratings, analysts of the publication summarize the value of all the assets of a company, its owner, after which the approximate amount of its funds is displayed.

The cryptocurrency broke into the market relatively and made tremendous change. The economy has never faced this kind of money. The term e-currency capitalization was widely used in the FAQ for novice investors, but remains largely undisclosed. In this article I will try to explain the features of this concept, its importance in economics and answer popular questions.    

What is cryptocurrency capitalization

Various explanations for this concept are often found on the net. For the most part, what capitalization is is misinterpreted. The term is not new, but financial illiteracy of the population is the main reason for most of the incorrect explanations. This leads to the fact that the formulation loses its true meaning.

Capitalization is a measure of the market value of assets. In the most common case, this is what they say about the company's shares. To find out the amount, you need to multiply the price of one security by their number. The indicator is always calculated based on the market rate. If we are dealing with an enterprise, then its capitalization will consist of the cost of real estate, equipment, logistics and other parameters.

This explanation can be applied to the e-money market as well. Cryptocurrency capitalization is an indicator of the real amount of development blockchain that has put its tokens or coins on currency exchanges. Accordingly, the larger the project, the higher its cost.

Capitalization shows the place of cryptocurrency in the market. For experienced investors, this is a signal to choose a certain currency for their portfolio. Every investor is looking for a stable financial instrument for their capital. After all, each asset is influenced by market makers (traders who concede large volumes of contracts). These people are able to move the price up or down, causing panic among small traders. But in classic markets, market makers have less influence on capitalization. This is the difference between conventional and cryptocurrency exchanges.  

Let's look at a simple example. Let's take a typical company with 100 shares in stock. The price of one is 200,000 rubles. To estimate the value of the entire enterprise, it is enough to multiply the number of securities by the price. We get 20 million rubles, which shows the capitalization of the entire company. In such an empirical and uncomplicated way, the dependence and the estimated value of physical objects are calculated.

But with cryptocurrency, not everything is so smooth. The described methods of analysis are not suitable, or rather, they do not show the real value of electronic money. If stocks are suitable for counting and analysis, the question arises - what to count in a crypt? The problem is explained by the main feature of such money - its virtuality. They seem to be there, but only in electronic form.

It should be noted that the issue of capitalization of cryptocurrency funds causes heated debate among economists. Experts say that it is impossible to calculate the exact amount of capitalization. This is due to the loss of a large number of cryptographic signs and the inability to determine their number and location. The famous creator of bitcoin - Satoshi Nakamoto literally disappeared from the world of virtual money with a million bitcoins. There are cases when at the dawn of the formation of cryptographic finance, some samples disappeared along with passwords and data carriers. Nowadays, when a person was able to explain the value of electronic currency, their accidental losses decreased, but did not disappear altogether.   

Speaking about cryptocurrency, you need to understand that each type has its own capitalization. Not to be confused with the course - these are different characteristics, albeit related to each other. If the former began to grow, then the value will invariably go up.  

Despite all the complexities of electronic money accounting, this market exists. There are no hints that virtual currencies will be shut down. It is important for a professional investor to know where to invest and how to keep track of the value of a specific unit. His profit depends on this, and it would be unreasonable to ignore this indicator. But a logical question arises - why calculate the total cost, because it is enough to know the current exchange rate?

In fact, capitalization reveals the nature and stability of a currency. Based on the indicators, an experienced investor will be able to decide where to invest, in which unit to store savings. Since its inception, the currency has been programmed for economic development. The number of signs is regularly increasing, new variants of money appear, and demand is growing. Capitalization, as a related parameter, also cannot stand aside and rises inexorably.

Bitcoin remains the most popular and "promoted" currency. This cryptographic token has the largest capitalization, incomparable with other young currencies. 

But among the achievements in growth, the cue ball can boast of a "heavy" character. Volatility leads to sharp falls and increases in the exchange rate, which also affects the value of the currency. This is successfully used by crowds of small speculators, trading robots-scripts. Noticing a sharp movement of the asset, they instantly accelerate the process, causing a "snowball" effect.

This continues until an important event in the world of virtual money, the entry of a major player, or other influential situation unfolds the dynamics and "pacifies" the cue ball. At this time, the price of the asset is in a fever. Large investors exit the market by taking profits.

Although the price jumps were large, capitalization will persist as long as large volumes of coins are included in the market turnover. A large withdrawal of investors from the network will be a bad signal: the number of coins decreases, the capital of the virtual currency decreases. Therefore, it is important for electronic money to maintain the popularity and attract large players to their system.  

Capitalization of e-currency and the number of coins

For an investor who is going to work with virtual money, it is important to know the ratio of capitalization to the price of coins and their quantity. In other words, large amounts of value can be the result of two events:

1. A significant number of "bills" issued on the virtual market;

2. High price level.

Consider an example: a virtual currency with an average capitalization ratio, but a low value of one coin. Accordingly, the price of the currency is caused by the large number of coins issued to the network.   

For the depositor, the plus of such a situation is a greater profit with an increase in the exchange rate than with the same increase in a currency with an identical capitalization, but also with a high coin value. Let's explain:

● By investing $ 100 in single coins, a person will receive 100 coins.

● When the value of the coin jumps another $ 1, the profit will be 100% for the entire trade.

But if you invest $ 100 in coins at $ 10 each, then their number will be only 10. Increasing the price by $ 1, the exhaust from the transaction will be only 10%.

Anyone familiar with economics knows the main rule: a big demand pushes the price of a product up, and a large supply extinguishes it. It turns out that the expectation of a growth in the rate of a cryptocurrency with a large number of coins issued is in vain. A currency with a small amount of coins will win the competition, because in the first case the offer is higher.

Consider another example: mid-cap e-money with a high single coin price. Capitalization depends on the value of the coin.

In such a situation, there are two possible scenarios for the development of events:

1. money attracted external investors for some reason, which pushed the rate up;

2. the high cost is not caused by natural factors, but artificially inflated.

 What should a potential investor do in this case? 

It is wise to assess the actual value of the currency here, rather than traditional indicators. This method of analysis is also called fundamental.

Crypto money lends itself to this method of assessment, but it must be carried out carefully. The main thing to remember is that electronic money, in addition to the usual cost, also has a technical value. In the IT era, this factor can play a decisive role.

Let's summarize the intermediate result:

If, after analysis, the investor sees a clear picture of the high cost of virtual coins, this can serve as a positive signal to start investing. The benchmark is medium and large cap currencies.

If it is impossible to explain the reason for the high price, you need to think. The cost is based on unknown factors, the base of the currency is rather vague. Such a crypt can collapse at any time.  

Beware of unreasonably high capitalizations - this is a sure signal of an asset's unreliability.

How cryptocurrency capitalization is calculated

Speaking about calculating the capitalization of a product, it is worth noting that there is no need to calculate assets yourself. There are special services that show online the real values ​​of the digital currency and its dynamics. But these are average values.

In practice, it is impossible to calculate absolutely correct values. If at least one user of virtual money loses the key to his wallet, all funds will remain out of circulation. They actually exist, but it is no longer possible to use them.

The formula for calculating capitalization is simple. The price of one coin must be multiplied by their number in the market. Consider the example of bitcoin: the average currency capitalization is about $ 90-91 billion. The circulating supply is around 17 billion. To find out the price of one coin, it is enough to divide the market capitalization by the circulating value. It turns out about $ 5,000. It is important to remember that this figure can change at any moment. For this reason, it is more convenient to use averaged values.

This method applies to other virtual money. The method also works for predicting the future price - it is enough to guess its market value. But, as we found out, high capitalization does not always mean stability.  

There is a big problem in calculating indicators - the lack of completely truthful data. In classic trading markets, this is done by the quotes (liquidity) providers. There are no such sources in the world of digital money. Exchanges have to independently calculate the indicator, relying only on their own data. Unfortunately, most of the important variables are overlooked.

Virtual currencies have another property - high volatility. This directly affects the veracity of the data. There is no system that instantly corrects indicators at the smallest price movement. This is a huge amount of data, with a lot of variables. Therefore, it is customary to use three characteristics to help calculate capitalization:

● Negotiable offer: the sum of all coins that are currently in circulation and are available to all customers.

● The total supply is the sum of all coins that have existed since the launch of the virtual currency.

● The maximum supply is the amount of all money that can presumably be created during the estimated period of the existence of an electronic system.

Experts agree that the assessment based on circulating data gives the most accurate result. It does not affect coins that are hidden from the market and users, thus, unnecessary variables are not introduced.

Given the active growth in the popularity of virtual money, it is quite possible to create services that collect and issue real data on the digital industry. In this case, the calculation of capitalization is possible even at the individual level.

Why cryptocurrency market capitalization matters

We figured out the concept of capitalization. But is its significance so great in practice? Why should an already busy investor delve into the essence of seemingly stable digital currencies? Let's look at real examples.

● Crypt "X" has appeared on the market, which has a low cost. There is a small amount of coins in circulation - up to 1000 pieces. Using the formula, we come to the conclusion that the capitalization "X" is 10 thousand dollars. A trader who has half of the coins available has tremendous influence on this currency. He can easily drive the price up, lower it, keep it in a neutral position.

● Another example: Currency “Y” enters the market at a cost of $ 100. The number of coins is 10,000. Miners or traders holding more than 50% of the asset (5,000 coins) have a tangible influence over the "Y" rate. An investor entering the market will not be able to take control of the currency on the fly - he will not have more money at his disposal.

● The third option is the long-lived crypt "Z". There is a huge amount of coins in circulation at a low price. For example, 1 million coins at $ 1 each. The total capitalization of the virtual system is $ 1 million. Even with 1000 coins, an investor will not put significant pressure on the market for this currency. To buy more than 500 thousand coins is almost unrealistic.

● The fourth option is a digital system with a lot of money at a high cost. This example is the most stable situation. Monopoly influence on the exchange rate is excluded - huge investments from the outside will be required. A sudden collapse in cryptocurrency is also unrealistic.

Based on these examples, you can see the true role of capitalization. It shows each market participant the reliability and stability of a particular digital unit. Its high level plays an important role in protecting money from dishonest schemes. An example of this is Pump & Dump, when a group of people artificially inflates the value of a currency in order to sell it on.

A high cryptocurrency capitalization rate serves as a signal that money is popular among market participants. They are not collected in one pocket, there is no monopoly influence on indicators, there is no player with great power. These coins are distributed to customers.

Factors affecting cryptocurrency capitalization

Capitalization does not form on its own. There are a number of parameters behind this that have a direct impact on the process.

There are two fundamental components: the price for one coin and their total quantity. These characteristics are the basis that constitutes the capitalization indicator. A significant part in the formation of the indicator is the popularity of money among people. This is a natural process: the more customers are interested in using a particular type of coin, the higher its position in the market. Bitcoin is generated by thousands of people who have powerful farms at their disposal. But here's the catch: it's getting harder and harder to get a new coin with that many. This directly affects the formation of value.

Other factors of capitalization include:

1. speeches of world analysts predicting the future of the crypto;

2. new mining systems;

3. interest of the media in promoting the digital industry;

4. regulation of crypto circulation at the legislative level;

5. the release of new electronic money systems.

For example, the value of Bitcoin has been increasing rapidly due to a number of events:

● dissemination of information to attract new customers;

● Introduction of electronic exchange systems and others.

If major powers (such as China, the United States) ban the use of electronic systems, demand will predictably creep down, as will the total cost.

Despite different predictions of the fate of virtual currencies, they continue to attract the interest of more users. Bitcoin, Ethereum, Litecoin have experienced declines, growth, but continue to develop at an intensive pace. This popularity attracts large investors. But among the thousands of positive reviews, there are risks.

Reality shows that the crypt can easily be corrected by 40-60% within a few days. Inexperienced investors will not be able to survive such reversals, fraught with large losses. Therefore, no matter how tempting this market is, it is important to always take into account the full set of capitalization factors:

● Demand - the more it is, the more investments the coin will attract;

● Fundamental analysis - the opinion of experts, the mood of the creators of the cryptocurrency, the political situation, pressure from states and others;

● Direction of large investors from the external market;

● the total number of miners mining coins;

● loading the network of currency;

● interest of partners;

● participation in trading on the exchange;

● increased media attention;

● regulation of coin circulation by law.

Bitcoin Dominance Index

The crypto market is young enough to take advantage of entrenched economic valuations. Most are simply unable to describe virtual money in terms of the traditional marketplace. Therefore, holders of digital currency often implement their own indicators for analysis. One such characteristic is the Bitcoin Dominance Index.

The function of the characteristic is to show the real share of the cue ball in the entire virtual money market. All cryptocurrencies, including young and imperfect ones, are taken for the calculation.

Most fans of electronic money know that Bitcoin has always been positioned as a dominant network. In recent years, he has successfully kept the brand, gradually increasing capitalization. But the trend has gradually changed, especially with the arrival of other coins. Their popularization did not play the best role with the cue ball - some of the clients switched to new options for money.

This development of alternative virtual systems has led to the instability of the bitcoin dominance index. The currency remains dominant throughout the network, but the cue ball's positions are not indestructible. When the index drops, many users start to rejoice. A large number of large investors prefer alternative currencies. While their number is not so large as to significantly shake the dominant, but their intensive reproduction raises questions.  

Dominance Index Disadvantages

At the moment, the market is playing according to the rules of Bitcoin. It generates most of the trades. Alternative coins are changed in tandem with the cue ball. This means that the procedure for converting coins is impossible without the direct participation of Bitcoin. None, even a popular alternative, is complete without a dominant.

This development of events makes the dominance index not the most informative value. For example, the indicator is 55%. So many clients keep their savings in this currency. At this time, 45% of other coins can be converted to others relative to the price of Bitcoin. Given the high volatility of the cue ball, price volatility throughout the market cannot be avoided.

Another point is the assessment of the volume of the cryptocurrency market. Tokens, forks, pre-mining, bonus gifts for network miners - all this complicates the calculation. How to put additional, prize coins that are not independent units into the equation. Whether it is worth considering them is still unknown.

On the one hand, their use is justified. This is the same money, they occupy their own niche in the market. But there is also a downside to the coin - some "cunning" do not offer any benefits when paying with their own prize coins, tokens. There are a lot of inaccuracies in this segment. More negatively, it's a bit for scammers.  

In summary, I would like to note that the Bitcoin Dominance Index is a good idea for assessing market distribution. The metric measurement of volume will be useful to many traders. But it displays only a momentary screenshot of the entire system - it is difficult to make predictions based on the index.


Where to see the statistics of cryptocurrency capitalization

There are a number of services offering this service. Some are quite professional, making it not very pleasant for a beginner to view information. Others provide data with noticeable delays.

We have tried to highlight the most popular and convenient resources.

Profinvestment

The site offers real crypto rates, indicating the capitalization for the current day. The data is updated regularly, regardless of users. For convenience, each change in quotes is accompanied by a notification.

The resource contains all popular electronic money systems. Additionally, a lot of useful information about virtual coins awaits the user.

Coinmarketcap

A major resource dedicated to the crypto money market. Has all the necessary information on each currency system. Information is updated online. Displays indicators of both known and uncirculated coins. Information is collected from other sites.

Coincheckup

The feature set of this resource is huge. Here is a detailed summary of the data for each cryptocurrency. In addition, the user can view the growth and fall dynamics of a particular system. A section with opinions and forecasts of leading analysts is available. For ease of use, the resource provides a number of filters.

Cryptocompare

This site is useful for investors. Allows you to monitor transactions, the dynamics of money turnover in the portfolio, the profitability of the pair. There is a section for analyzing economic risks based on a summary of fundamental data.

Additionally, information about all cryptocurrency exchanges, mining and other areas in the field of electronic money is posted for the user.   

GoinGecko

A popular resource that allows you to keep track of all electronic coins. Nice interface, easy navigation. Has a personal algorithm that forms the list of leaders in the virtual industry. In practice, the summary differs from the exchange one.

The purpose of these resources is to make life easier for users and traders in the electronic money market. The current situation is especially marked by the large variety of currencies. It is physically unrealistic to observe everyone, to track their parameters.

Using such sites, the investor always has the necessary set of tools at hand:

1. real graph of currency dynamics;

2. actual capitalization;

3. the cost of one coin;

4. analysts' forecast, news in the field of virtual money.

The last point should not be neglected. News bulletins for any currency carry a lot of weight in the dynamics of development. Based on the latest analytical data, researching global news, you can predict the course of movement of a particular coin. This part of fundamental analysis does not predict strongly the virtual segment of the market, but an increasing number of professional users prefer it.

What's more important? Cryptocurrency capitalization or price?

We will devote the final part to conclusions. Let's compare the importance of price and volume of capitalization. Is it possible to give preference to one value?

Obviously not. The price metric of virtual coins shows the mood of the players and reflects the demand on the network. The higher it is, the more users want to buy an expensive coin. But, as we found out, the reasons for the high cost can be different, including those caused by speculators. Therefore, you should not instantly buy up a crypt with the last money.

The capitalization of cryptocurrencies  is aimed at displaying the volume that a particular digital system occupies. According to its data, it is possible to assess the stability of the coins, their position in the market and the popularity of the project. In theory, the larger the volume of the coins, the more customers keep them available.

Note that the price is not a guarantee of the stability of the crypt. This parameter cannot characterize the filling of the market with the required number of coins. Capitalization, in turn, does not speak about the future prospects of electronic money.

What should you pay attention to in this case? This question worries every trader and investor. In any case, they will come to a point where both values ​​do not give a clear answer. The answer is simple - pay attention to two characteristics, and at the same time.

It is impossible to imagine a situation where the total cryptocurrency capitalization  has become detached from the price and has become an independent evaluation criterion. Here you can recall some examples where the price of a coin is measured in cents, but capital is measured in billions. It's all about popularity and novelty.

When analyzing the situation, the investor must carefully weigh both parameters. One indicates popularity, the other indicates stability. When paired, they give an accurate estimate of the e-currency. It makes no sense to apply them separately - the characterization will turn out to be one-sided. This is the rule of all experienced buyers and traders.

It's a bad habit to confuse capitalization with asset value. These concepts characterize different properties of the currency. Often times, inexperienced users fall into the trap - the two parameters are really related, which is confusing. A drop in capital leads to a decrease in the token quote rate and vice versa.

This is due to pricing reasons. The cost is formed largely due to the faith of the users. Observing the growth of capitalization, buyers understand that a turning point is coming: demand has exceeded supply. Some make significant investments, increasing the possibilities of the asset in the future. Therefore, observing the formation of the price-capital pair, professional traders manage to buy coins in the early stages, which also pushes demand upward.

A feature of this approach is that crypt differs from classic stocks. In reality, it is impossible to calculate the capitalization of a virtual currency with 100% accuracy. No one has data on how much money is available to customers at a given time, and how much is forever lost on abandoned accounts, dead hard drives, etc. Let's remember Satoshi Nakamoto with his millions - they seem to exist, but they are not. All these coins have been withdrawn from circulation, although they really exist.

The analytics cites interesting data: up to 4.1 million Bitcoins alone, with a high degree of probability, are out of the market turnover. Therefore, it is impossible to call the data on the capitalization of the cue ball 100% real. This is the reason why the calculation of the capital of any electronic currency is problematic. Therefore, to evaluate an asset, you need to use a bunch of characteristics: price-capitalization. It represents a benchmark, the other represents popularity and demand.

When opening a deal, planning to buy coins and converting them, compare these parameters in pairs. This will give a full assessment of the condition of the asset and indicate the correctness of your actions. Think with an investor's mind and have successful deals on the crypto market!

 Attention! This article should not be considered or perceived by you as advice or a call for investment, it is for informational purposes only. I do not give such recommendations and when buying a cryptocurrency you completely rely on your knowledge and accept all risks.

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