Cryptocurrency brings together two facets of the world that often confound people: technology and finance. It isn’t unusual for a person to be completely at a loss when it comes to how to invest in different financial assets.
By the same token, many people don’t much of an idea what is going on when it comes to advanced technology. So, hearing a term like market capitalization thrown around when it comes to discussing the various crypto coins in existence just might make someone’s head explode. Yet it is an important concept to grasp when it comes to deciding which crypto coins are worth your investment.
The crypto world was simpler when it only consisted of Bitcoin, but there are now many other players on the market that want a piece of the action. If you are considering in investing in some of these coins, you can get some digital assistance from Ethereum Code to take some of the responsibility away from you. For those who wish to venture out into the brave new world of investing in cryptocurrency, you should really have a clear idea of what market capitalization is and how it pertains to certain coins being better bets than others.
1.The Formula
To put it simply, the market capitalization of any asset is simply the price of that asset multiplied by the number of units of that asset that are available. In the case of stocks, that would mean the shares of stock available times the stock price. Cryptocurrency works in much the same manner. To figure out the market cap of any given coin, simply multiply the number of digital coins that have been mined by the price of the coin.
2. What It Means
Many people fixate on the price of a given coin, thinking that it is an automatic indicator of its value. But the laws of supply and demand make it so that this isn’t always the case. For example, if there are only ten of a certain coin in existence, then the there value will likely be higher than one coin out of ten thousand. But it doesn’t mean that your investment in the rare coin is any wiser than if you bought many of the latter coins.
3. Market Share
Building off market capitalization, you can also figure out the market share of certain types of cryptocurrency. To do this, you would add up the market capitalization of every coin in existence. The market share of a single type of cryptocurrency would be that market cap divided by the entire market cap. The market share will help you identify the biggest players on the market, and you can judge from that which coins are more stable and have a more solid basis than others that might be a flash in the pan and could be a poor selection as an investment.
These are the basic ideas behind market capitalization and market share as they pertain to the world of cryptocurrency. Keep them always in mind when you see those figures and are deciding which coins might be worth your while.