The so-called market capitalization of a cryptocurrency it is a purely theoretical data.
From a strictly technical point of view, it is nothing more than the product of the price of individual units (the tokens) times the total number of units in circulation.
The total number of tokens in circulation is called circulating supply and corresponds to the number of tokens created and issued, that is, net of tokens already created but not yet usable.
For example, at the moment there are just under 18.5 million bitcoins in circulation, corresponding to the circulating supply of BTC. As far as Bitcoin is concerned, all created BTCs are usable as soon as they are created, so the circulating supply corresponds to the total supply.
However, it is already known that a maximum of 21 million will be created, so the maximum offer is 21 million.
Given that the price of a single BTC currently hovers around $ 36,600, the market capitalization of bitcoin is approximately $ 680 billion and is obtained by multiplying the circulating supply of around 18.5 million BTC by the price of $ 36,600 / BTC. .
The calculation is a bit more complex for those cryptocurrencies for which all the tokens have already been issued, but part of it cannot be used yet.
For example, all of the roughly 100 billion XRP tokens have already been issued, but only about 44 billion have been released.
Therefore, multiplying the circulating supply of Ripplei.e. 45 billion XRP, for the price of about $ 0.3 / XRP of a single token, gives a market capitalization of just over $ 13.5 billion.
What is the purpose of calculating market capitalization?
First, it must be said that the calculation is purely theoretical, because in the hypothetical case that someone decides to sell all the BTC, or XRP, in exchange for US dollars, it is practically impossible for them to obtain a dollar amount. equal to the market capitalization of Bitcoin or XRP.
After all, putting large amounts of tokens up for sale would cause their price to drop, and no one can determine how much the price might drop.
However, although it is purely theoretical, it is useful for making comparisons, especially between different cryptocurrencies.
At the end, even the market capitalization of listed companies is calculated in the same way and it has the same limits, but at least allows for comparisons.
For example, Ethereum's market capitalization It is about 157 billion dollars, so we can say that the existing BTC in circulation as a whole is worth about 5 and a half times the circulating ETH.
In turn, the total supply of ETH is worth about 3 times that of XRP, and that of XRP is worth more than twice that of BCH.
Given that the Bitcoin Cash market capitalization is just over $ 9.6 billion, we can say that Bitcoin as a whole is worth more than 41 times Bitcoin Cash.
The only real use of this theoretical data of the so-called market capitalization is make comparisons, not only between different cryptocurrencies but also between a cryptocurrency and for example a stock.
For example, the market capitalization of Tesla is roughly $ 844 billion, which is slightly less than the $ 1 trillion capitalization of all cryptocurrencies put together.
Another type of comparison can be made between changes over time in the market capitalization of a single cryptocurrency, or better yet, the total market capitalization of all cryptocurrencies.
For example, in 2015, when Ethereum was created, the total market capitalization of the entire cryptocurrency market was about $ 4 billion, then rose to $ 10 billion in 2016, and then skyrocketed to more than $ 800 billion during the bubble. speculative at the end of 2017.
By the end of 2018, it had returned to around 100 billion, while by mid-2019 it had risen to more than 350 billion.
Since then, it first fell below 200 billion in late 2019, then rose to more than 300 billion in February 2020, collapsed to 140 billion in mid-March, and then increased meteorically to around 1 trillion today.