In the crypto ecosystem and block chain, MarketCap or Market Capitalization is a term used to describe the size of a cryptocurrency or any other item in the financial market.
It can be calculated by multiplying the current market price of a coin or token with the total number of coins in circulation.
MC = CP × CS
Where MC = Market Capitalization
CP = Current Price of the coin
CS = Circulating Supply of the coin
For Example,
If coingov has a token of its own, it will be named $CGOV. Let say the price of $CGOV is worth $2 per coin.
The circulating supply is 100M tokens or coins.
To calculate this in order to find the MC.
Solution
MC = ?
CP = $2
CS = 100M
Then,
= $2 × 100M = $200,000,000
MC = $200,000,000
MarketCap shows the performance of a crypto project or any other commodity of which traders/investors take the advantage of this in investing on any project listed in the financial market.
MarketCap is not considered to be the money inflow and does not reflect how much money is in the market. MarketCap is directly dependent on the price of an asset class. Each asset has its own MarketCap.
Once the price of that asset goes up or down, it will also affect the MarketCap. Meaning that if, the price of CGOV increases in value to $3, the MarketCap will be $300,000,000 or less depending on price action at that moment.
Also, the increase in price of an asset, can only be caused by the demand upon the asset. Which many traders or investors refer to as liquidity or volume or both.
Liquidity Concept
Liquidity concept to cryptocurrencies is basically defined as the amount of token bought or sold without causing any significant in price action.
Liquidity is dependent on buyers and sellers in the market, they have the ability to scale the price of an asset up or down.
So, the higher the Liquidity, the lesser manipulation in the market.
NOTE: Trading the financial market effectively, requires an understanding of what Liquidity can do to a cryptocurrency MarketCap.
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