A phrase you may have come across regularly in the Cryptocurrency space is “Market Capitalization.” This phrase is often thrown around a lot without any precise meaning given behind it. It has been in the news again recently due to Bitcoin reaching a Market Capitalization dominance rate of over 50% for the first time in 2018. But what is Market Capitalization and why is it such a significant indicator in the Cryptocurrency market?
The definition of market capitalisation is relatively straightforward. It is the value of a company’s outstanding shares. In the Cryptocurrency space, the calculation of market cap is made by multiplying the price with the circulating supply. This figure gives a clear indicator of the relative dominance of specific Cryptocurrency coins over others. It is mainly used to compare Bitcoin with other cryptocurrencies. At the time of writing, Bitcoin’s market capitalisation is $105,785,552,545 which is roughly $901 million higher than all of the other Cryptocurrencies combined. This figure is useful for illustrating the dominance that Bitcoin has and this indicator has been regularly used to give an account of the market situation.
Market Capitalization gives an essential indicator of a coin. They highlight how much fiat investment a coin has. This can provide us with information about how popular a coin is and how much people have invested in it. Market capitalisation is commonly used to compare coins as the price is a wholly unreliable indicator of the merits of an individual currency. XRP is currently only a mere $0.294 on the market, however, is third in overall market capitalisation due to the high ownership of the coin. This figure shows how the price is mostly irrelevant in the modern Cryptocurrency Market in regards to how viable a Cryptocurrency coin is.
Bitcoin Dominance and why it Matters
The last time Bitcoin had over 50% of market capitalisation dominance was back in December 2017 when the entire market was reaching all the time highs. The current pictures are strikingly different with Coins struggling to recover from their long-term slumps. In a sense, this Bitcoin dominance reflects people taking fiat out of altcoins and investing it in a ‘safer’ option that they see as Bitcoin. The market revolves around Bitcoin as it was the first notable Blockchain project in existence and the rest have merely followed its lead. There has been no other coin that has come close to the market cap of Bitcoin. This coin acts a ‘reserve’ of the Cryptocurrency market, and it is the seen as the less risky option than alt-coins.
Limitations of Market Capitalization
Although market capitalisation is a useful measure for comparing coins, it is not infallible, and it is not the only noteworthy measure. Metrics such as exchange volume and on-chain transaction volume should be used in conjunction with a market cap to get a more accurate idea. The dominance statistic is created by using the market cap figures; therefore it is important to remember that it is not 100% correct.
The recent news of Bitcoin climbing above 50% regarding overall market capitalisation dominance isn’t a big shock however it is still a significant moment for the coin as it once again highlights how it is viewed in investment terms. Bitcoin remains the gold standard for Cryptocurrency investment, and we are unlikely to see that change anytime soon.