What is cryptocurrency capitalization, the principle of formation

In this article you will learn what capitalization of cryptocurrencies is and the principle of its formation, as well as whatfactors actually influence changes in the indicator.

So, first let's answer the question:What is the capitalization of cryptocurrencies? In simple and understandable terms, this is the cost of a particular coin. That is, it is an indicator that represents the total price of a coin on the world stage. In the capitalization of cryptocurrencies, the emphasis is on the sheer number of mined coins, but not on their turnover.

Important:capitalization is the most important parameter for assessing the value of a particular coin. It is this that, in part, attracts the attention of investors to the coin. The more popular a cryptocurrency is, the lower its volatility. And the lower the volatility, the more difficult it is to influence the value of the cryptocurrency.

Factors That Affect Cryptocurrency Capitalization

After we figured out what is called capitalization, consider the factors that affect its growth.

There are two main factors:

The first factor – the total number of coins that are in circulation;

Second factor – exchange rate of these coins.

If we take the well-known Bitcoin as an example, thenits number of coins in circulation continues to grow every day. This is due to the uninterrupted mining of the coin and the growth of capacities aimed at its extraction. There is an opinion that an increase in the network hashrate contributes to an increase in the exchange rate for this coin. This can be characterized by a simple principle: the more difficult it is to mine a cryptocurrency, the higher its rate will be. The higher the demand for a coin, the higher its rate will be, and, accordingly, the capitalization itself. However, as we can see, this rule has not been in effect lately, and while the hashrate is setting new highs, the Bitcoin price is in no hurry to make similar steps.

What affects coin demand

The following factors influence coin demand:

Cryptocurrency media;

the behavior of different traders on well-known exchanges;

new technologies, innovations in the crypto world;

forecasts for the cryptocurrency rate from financiers, traders, etc.

Dynamics of the capitalization indicator of cryptocurrencies over recent years

At the beginning of 2018, the capitalization levelrose to "heaven". It reached $830 billion. But, unfortunately, this figure decreased very quickly, and just as quickly as it increased. Six months later, the capitalization of all coins was only $300 billion.

Since reaching maximum levelsthe low point was recorded in early 2019 at under $120 billion. As you can see, this figure is 7 times less than the figures for the beginning of 2018. At the time of writing, the total market capitalization is at $230 billion, according to CoinMarketCap data.

Why do you need to monitor the level of capitalization

Now you may have a question: why bother with monitoring the level of capitalization? We will give an answer to this question.

Of course, to influence Bitcoin volatilityyou will have to spend huge amounts of money, which will amount to millions of dollars. But for coins with a low capitalization level, lower costs are required. For this reason, coins with low capitalization may unexpectedly fall several times or, on the contrary, grow. You can make money from this, buy coins at a low cost, and after its value increases, sell these coins and get a decent income. Here are live examples: over the past year, Binance Coin +127.56%, Bitcoin +86.78%. But you can not only make money from this. Using the capitalization rate, you can determine the market demand for a particular coin, and this is useful information for traders.

What cryptocurrencies are promising for investing

Many experienced traders invest their fundsTOP 10. This is the right approach, because such coins have more prospects and chances that they will increase in price, which is why the trader can make a solid profit. As for the less popular coins that are not included in the TOP 10, their success will depend on marketing, the versatility of the product, as well as favorable offers for their clients, this is what will generate interest in cryptocurrency. For a coin to get into the TOP 10, it will not be enough to simply launch this cryptocurrency and promote it well, because the formation of the market is happening smoothly, gradually, and many investors have already decided where to invest their money.

Output

So, capitalization – this is one of the main onescharacteristics of any cryptocurrency. It shows the value of your chosen coin, sort of like an indicator of the “strength” of a cryptocurrency. It is based on this characteristic that you can choose an asset for successful investment. In most cases, it is small-cap cryptocurrencies that show rapid growth in market value. Therefore, you need to closely monitor this important criterion for the growth of a coin, and then you will have a good opportunity to make money on cryptocurrency.