Market Capitalization (or Market Cap) is the overall dollar value of a company's issued shares of stock. In cryptocurrency, market capitalization is the combined value of all the coins that have been circulated. 
In the context of the blockchain industry, market capitalization is a metric utilized to estimate the relative size of a cryptocurrency. This is the total market value of a cryptocurrency and calculation involves multiplying the present market price or monetary value of a specific coin or token by its total supply currently in circulation. 
For example, if a cryptocurrency has 1,000,000 coins in circulation and each coin is trading at $10, the market capitalization of that cryptocurrency would be $10,000,000.
If a cryptocurrency is not in circulation, it is not possible to calculate its market capitalization. However, it is still possible to calculate the total supply of the cryptocurrency, which is the number of coins that exist on the crypto markets at the present time but are not necessarily in circulation.
While it is undeniable that the cryptocurrency market is volatile, large market capitalization often indicates investment stability. In contrast, cryptocurrencies with smaller caps often tend to be more sensitive to overall market sentiments. Hence, market caps provide insight into the value and stability of a cryptocurrency in the long term. 
Importance of Market Capitalization
The market capitalization provides investors with insights into the current status and performance of a project.
To begin with, market capitalization enables investors to compare the overall value of one cryptocurrency against another, assisting in making well-informed investment choices. Market cap does not only help assess the relative safety of purchasing compared to other options but also offers insights into the growth prospects of a cryptocurrency. 
Market capitalization can also provide insights into trends. For instance, when a cluster of cryptocurrencies connected to decentralized finance applications or non-fungible token trading experiences a collective increase or decrease in value, it indicates a trend within that specific market segment, suggesting an influx or decline in investor interest.
Factors Affecting Market Capitalization
There are several factors that can affect the market capitalization of a cryptocurrency.
- Supply of a Particular Cryptocurrency in Circulation: The value of assets in modern-day economics is determined by utility and scarcity. Similar to fiat currencies, cryptocurrencies have a utility because they can function as a medium of exchange, a store of value, and a unit of account. The availability of supply is also an important factor. The law of supply and demand states that all else being equal, the value of an item tends to increase when the supply of that good decreases.
- Current and Assumed Future Market Capitalization: Market capitalization is the total dollar market value of all of the units of a particular asset. In a particular cryptocurrency, it represents the total value of all the coins or tokens that have been released.
- Macroeconomic Factors: Monetary policy, fiscal policy, and events like Covid-19 can impact the crypto market. Typically, expansionary monetary policy and fiscal policy have a positive impact on the crypto market, while contractionary monetary policy and fiscal policy have the opposite effect.
- Regulations: The regulations governing its sale and use can also influence the price of a cryptocurrency.
- Competition: The number of competing cryptocurrencies can also affect the price.
- Social Factors: Market sentiments, lack of regulatory oversight, and herd mentality can also affect the price of cryptocurrency.
Market capitalization is predominantly influenced by supply and price. A rapid increase in price leads to a substantial rise in market capitalization. Yet, considering the constant interplay of supply, investors gain a more comprehensive understanding of a cryptocurrency's future prospects by focusing on market capitalization data rather than getting caught up in short-lived price surges.
Cryptocurrency Classification by Market Cap
Cryptocurrencies can be classified into three types based on their market cap: small-cap cryptos, medium-cap cryptos, and large-cap cryptos.
Small-cap cryptocurrencies are characterized by having a market capitalization that falls below the billion-dollar threshold. These investments carry a high level of risk, but certain options have the potential for high financial returns. 
Mid-cap cryptocurrencies possess market capitalizations ranging between $1 billion and $10 billion. They are typically perceived as having greater untapped potential for upward movement, but this potential comes with elevated risk levels.
Most mid-cap cryptos tend to be on the move constantly, often with less than five years in the market. They are often associated with building innovative products, especially within the DeFi niche. 
Large-cap cryptocurrencies are typically characterized by a market capitalization that surpasses $10 billion. These particular cryptocurrencies dominate the majority of the cryptocurrency market capitalization. Investors familiar with traditional stock market investments may find similarities in purchasing large-cap cryptocurrencies, which can be compared to acquiring blue-chip stocks. 
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