Hello. In this article, we are going to look into how Crypto Market Capitalization works and how you can use it to make your own investment decisions.

Cryptocurrency Market Capitalization or Cryptocurrency Market Cap is a useful metric to know the real value of cryptocurrency. If you go to coinmarketcap, then you will see the coins ranked in the descending order of their market cap.

Calculating Cryptocurrency Market Cap

Market cap of a coin is calculated using this formula:

Market cap = Total Circulating Supply * Price of each coin.

In other words, it is a product of the coin’s circulating supply and the price of each coin.

Large-Cap vs Mid-Cap vs Small-Cap

Ranking by market cap shows us how much risk we are dealing with when we choose to invest in a cryptocurrency. Cryptocurrencies can be broadly classified into “large-cap”, “mid-cap” and “small-cap”.

Large-cap cryptocurrencies have a big market cap and as such are safe investments to make. Companies with more than $10 billion market cap are classified large-cap companies. Going by that estimate, as of writing, only Bitcoin, Ripple, and Ethereum classify as large-cap cryptos.

Mid-cap cryptocurrencies have a smaller market cap but more risk than large-cap cryptos. Cryptos with market caps between $1 billion and $10 billion market cap are mid-cap.

Small-cap cryptocurrencies have the smallest market cap and the highest risk because the chances of failure are much higher. Companies with market cap below $1 billion are small-cap.

Risk vs Reward

Large-Cap

If you decide to invest in large-cap crypto, then your investment will mostly not experience any major growth. It will be considered a “safe” investment and a lesser volatile investment. So, while you may not be making any major gains, your investment may still have some slight conservative growth. Keep in mind, cryptocurrencies are a lot more volatile than traditional stocks. So, large-cap cryptos may still have a larger scope of growth than large-cap shares.

Mid-Cap

Now, mid-cap cryptos have a lower market-cap than large-cap. They have a lot more growth potential than large-caps, which is also why they carry more risks. The reason why they have more growth potential is that they may still be in the stage of increasing their market or utility. As such, these aren’t anywhere near their full potential.

Small-Cap

Because of their low market cap, these cryptos are susceptible to the whims of the market. To put it simply, you may see your investment in them go down to a negligible amount in an instant.

So, why should you invest in them in the first place? Well, because they have the potential to truly explode in value and give you huge returns on your investment, much more than what large-cap or mid-cap cryptos can give you.

Select the right combination

How exactly should you invest your hard-earned money in cryptocurrencies? So, we have three classes of cryptos: large-cap, mid-cap, and small-cap. These classes may not experience growth at the same time. Meaning, your mid-cap cryptos may grow at a time when your large-cap cryptos are depreciating. Hence, it makes sense to have a portfolio which is diversified and has a good mix of all the three classes.

The advantage of a diversified portfolio is as follows: