The overall cryptocurrency market cap is the combined value of all the cryptocurrencies on the market. Since cryptocurrencies tend to be volatile, the market cap is also highly volatile and often goes through significant changes. To see how it works, this guide will cover cryptocurrency market caps and what they can tell investors.
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What is it?
What is a cryptocurrency market cap?
A cryptocurrency market cap, short for market capitalization, is that cryptocurrency's total value. It's calculated by multiplying the current price of the cryptocurrency by the circulating supply, meaning the number of coins currently available.
For example, let's say that a cryptocurrency has a price of $100 and a circulating supply of one million coins. That would mean its market cap is $100 million. Since market caps are based on cryptocurrency prices, they're constantly changing.
What does it tell investors?
What does the crypto market cap tell investors?
The overall crypto market cap gives investors an idea of the current market trend. A rising market cap indicates a bull market, where people generally feel positively about crypto and more investors are buying in or bolstering their positions. A falling market cap indicates a bear market, where investors are more likely to stand pat or sell off crypto.
Market caps for specific cryptocurrencies are also useful tools that can help investors gauge the size and stability of those projects. If you want to compare multiple cryptocurrencies, their market caps and not their prices will show you their value. As a general rule, cryptocurrencies with larger market caps tend to be more stable (although that's “more stable” by crypto standards since they're still far from what anyone would consider a stable or low-risk investment).
What is the overall cryptocurrency market cap?
The overall cryptocurrency market cap has ranged from less than $200 billion to more than $3 trillion since 2020. Due to the volatility of cryptocurrency, the overall market cap can fluctuate quite a bit, even from day to day. There have been times when the crypto market lost more than $300 billion in a single day, as well as periods when the market cap doubled in a matter of weeks.
Top 5 cryptocurrencies by market cap
Top 5 cryptocurrencies by market cap
Here are the top five cryptocurrencies by market cap:
1. Bitcoin
Created by an anonymous founder and launched in 2009, Bitcoin (BTC -2.44%) was the first cryptocurrency. It introduced the idea of a decentralized digital currency that recorded transactions on a blockchain (a public ledger).
While Bitcoin was designed as an electronic payment system, many newer cryptocurrencies offer faster and cheaper transactions. It's now primarily seen as an investment, and it's often referred to as a digital form of gold.
New coins are minted through the Bitcoin mining process, which is also how Bitcoin validates transactions. There's a maximum supply of 21 million BTC. After that limit is reached, no new Bitcoin can be mined.
2. Ethereum
Ethereum (ETH -1.3%) is a blockchain platform that started development in 2013 and launched in 2015. It's notable for being the first blockchain with smart contract functionality. Smart contracts are self-executing programs that run on a blockchain and self-execute when specific conditions are met.
The capability of running smart contracts makes Ethereum a blockchain platform that developers can build on. It's used to create decentralized apps (dApps), which are essentially apps that run on a blockchain. These dApps can be used for more ambitious projects such as decentralized finance (DeFi) platforms that serve as an alternative to traditional financial institutions.
3. Tether
Tether (USDT -0.01%) is a stablecoin, a type of cryptocurrency that's pegged to another asset. In Tether's case, that asset is the U.S. dollar, meaning it aims to maintain a value of $1 for 1 USDT. While that's normally the case, there have been times when Tether has been worth less than or more than $1 due to market conditions.
Tether is controversial since it has faced scrutiny about its reserves and legal issues. Despite its reputation, it's the largest stablecoin and the cryptocurrency with the highest trading volume.
4. USD Coin
USD Coin (USDC -0.0%) is a stablecoin pegged to the U.S. dollar, so it serves the same purpose as Tether. It has been cutting into Tether's lead in the stablecoin space, and it has a key advantage in that it has established a better reputation for trustworthiness.
Unlike Tether, USD Coin has monthly attestations verifying its reserves issued by Grant Thornton, LLP, a top accounting firm. It's also subject to far more regulatory oversight because it's regulated as a stored value instrument.
5. BNB
BNB (BNB -3.65%) is the official cryptocurrency of the Binance exchange, one of the top global crypto exchanges. It's considered a utility token and serves a variety of roles within the Binance ecosystem.
For example, Binance clients get trading fee discounts for paying in BNB. BNB is also used to pay transaction fees on the BNB Chain, which is Binance's blockchain platform.
If you're investing in cryptocurrency stocks or individual coins, it's worth keeping an eye on market caps. Both the overall market cap and the market caps for different cryptocurrencies are useful metrics that can help your investing decisions.
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Lyle Daly has positions in Binance Coin, Bitcoin, Ethereum, Tether, and USD Coin. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
