✔️ Information reviewed and updated in December 2023 by Eduardo López
Every cryptocurrency has to meet an objective, reach the highest possible value and keep it stable for a long period of time, the more, in both cases, the better. That's how compounding is, the more the coin is worth and the longer that price can sustain, the more profitable it will turn out to be.
Here we will talk about what the capitalization of cryptocurrencies is and how it is directly related to their value. We will tell you about the forms of capitalization that exist, the factors to take into account and how you can calculate the capitalization of cryptocurrencies yourself.
✨ What is the capitalization of cryptocurrencies?
We can describe the capitalization of cryptocurrencies as the process in which they acquire value. Otherwise, Experts call the capitalization of cryptocurrencies as multiplying the amount of these available in circulation by their price, that is, calculating how much they are worth.
You should know that the capitalization of the coins is not always the same, since it is changing because it varies depending on market prices and the amount of coins in circulation. That is why its calculation must be done with a certain periodicity.
✨Two forms of capitalization
- Circulating Supply: The first form of capitalization is the one that uses the coins in circulation and that are available for operations such as exchanges. This type of capitalization, basically, is summarized in using only the cryptocurrencies that are already available and that are real.
- Max Supply: The Max Supply bases the calculation of capitalization on the maximum number of coins that will be in circulation. The current number is not used here, but the maximum number of coins there will be. It could be said that it is the potential future capitalization of this currency.
Suppose X cryptocurrency has 1,000,000 currencies in circulation with a value of $ 10 each. So the capitalization value according to the coins in circulation will be 10 million dollars. Why? Just multiply 1,000,000 coins for a price of $ 10 each.
Now let's imagine that said cryptocurrency has the capacity to issue a maximum of 4 million virtual currencies. So, its capitalization potential will be 40 million if we take into account its current value. You just have to multiply 10 dollars (price) by 4 million (maximum number of coins to be issued).
✨ Its importance
It is very important to take into account the capitalization, since this indicator allows you to determine the real and potential value of the cryptocurrency. You will be able to know how much it is worth in the market and thus, better analyze if it represents an investment opportunity or better raisins.
Take into account that Some experts believe that the longer you wait to put all the currencies into circulation, the greater the risk that the price will fall, since it would be diluted in a greater quantity of currencies. Although this does not take into account factors such as changes in the market and price fluctuations.
Maybe, if we throw all the coins that we have, the value will change. For example, if we have 10 million cryptocurrencies with a value of 100 million, it is likely that, if we launch the remaining 30,000,000, the value will fall as the 10 million is diluted, now between 40 million currencies.
In reality, this is not the case, as there is a possibility that demand will increase and value will grow, for example. It is always important to consider both the current or present capitalization and the potential or future capitalization, since both are fundamental to know the real value of the cryptocurrency.
✨ What are the bases of the capitalization of a virtual currency?
There is neither a formula nor points that are considered when capitalizing a cryptocurrency because these are not like stocks, for example. According to experts, these are some points in which they usually look for this process:
- ICO: If the ICO is successful, the total value of the ICO can be a good indicator of the value that the virtual currency will have when it is capitalized. While they may not be related in the end, it does give us an overview of what to expect.
- Supply / Demand: The law of supply and demand is usually one of those that most affects the price of cryptocurrencies. That is why some experts venture to affirm that this can become a factor when calculating the capitalization of the currency.
- The coin itself: Finally, the same currency usually offers relevant information when calculating its capitalization. It is important to take into account its characteristics, as this will help you to know if this assessment corresponds to your reality.
✨ Do SCAMs have capitalization?
Although many people might think that the cryptocurrency of a SCAM could have capitalization, in reality this is not the case. And you have to remember that a SCAM is basically a fraudulent ICO that arose to seek funds and after the collection, disappear.
That is why a SCAM cannot capitalize, since to do so it is necessary to have a cryptocurrency in circulation, something that they will not have. So if they talk to you about a SCAM with a large cap, as fantastic as Bitcoin, you better be very careful!
✨How can I calculate the capitalization of a cryptocurrency?
Calculating it independently, that is, yourself, is easier than you might think. All you have to do is investigate the amount of cryptocurrencies that are both in circulation and maximum to be released, as well as investigate their price.
You can do this in Google, for example, easily and quickly calculating with your mobile or your computer. Thus, you will be able to know the potential that a cryptocurrency can have in value which will help you make better decisions. All without having to be a financial expert.