Disclaimer: Cryptocurrencies are an inherently volatile asset class, and investments can carry substantial risks. This information is for educational purposes only and should not be construed as financial advice. Always do your own research and conduct due diligence before investing in crypto projects.
When it comes to Bitcoin and altcoins, the crypto market capitalization reigns supreme as a primary metric of dominance and influence. So far, Bitcoin’s market cap of over $864 billion makes it the undisputed king, sitting on top of all altcoins coins by market value. Naturally, the total cryptocurrency market cap spikes from time to time solely due to a Bitcoin-led rally.
But what is the reason behind Bitcoin’s market cap being so high? Buckle up as we explore these reasons, and shed light on some other crypto coins and tokens you can invest in judging by market cap.
What is Bitcoin’s market cap?
Bitcoin’s market cap refers to the total value of all bitcoins that have been mined and are in circulation. It’s calculated by multiplying the current value of Bitcoin by the total number of bitcoins in existence. Essentially, it represents the total market value of bitcoins at any given time and is a key metric used to gauge the crypto’s prominence and valuation in the overall cryptocurrency market. It serves as a benchmark for other coins and highlights the sheer scale of Bitcoin’s presence within the crypto landscape.
The market cap of Bitcoin at the end of 2023 is around $864 billion out of the $1.73 trillion total cryptocurrency market cap, and this figure is constantly changing due to fluctuations in its price. This metric encapsulates the total value of bitcoins in circulation, a value that’s influenced not only by market forces but also by significant events within the Bitcoin ecosystem, such as the periodic Bitcoin halvings.
Bitcoin halving is a critical event that occurs every four years, reducing the reward for mining new bitcoins in half. This mechanism reduces the rate at which new coins are generated, thereby controlling inflation and limiting the supply of new bitcoins entering circulation. The next Bitcoin halving event is scheduled to occur in April 2024.
Factors contributing to Bitcoin’s high market cap
Some of the reasons for Bitcoin’s market cap being so high are:
- First-mover advantage and brand recognition: With its inception in 2009, Bitcoin was the first cryptocurrency to be introduced. Therefore, it is the pioneer of decentralized finance, and has gained the most acceptance and trust among users, businesses, and investors. Its early entry solidified its position as the go-to digital asset for many entering the crypto space, contributing to Bitcoin’s market cap.
- Limited supply and perceived scarcity: Bitcoin has a finite supply of 21 million coins, with around 93% of this total supply already in circulation. This capped supply mimics the scarcity of precious metals like gold and contributes significantly to Bitcoin’s market cap. As Bitcoin’s supply diminishes due to mining and increasing adoption, the perception of scarcity intensifies. Also, the Bitcoin halving events every four years slow its issuance, reinforcing its scarcity. This scarcity acts as a catalyst to fuel demand and drive up the value of bitcoins, thereby boosting its market cap.
- Store of value and inflation hedge: Bitcoin was released after the global financial crisis of 2008. As traditional currencies faced the tide of inflation, Bitcoin presented itself as a life raft. Its limited supply made it inherently resistant to devaluation, attracting investors seeking to protect their wealth against inflation. This factor contributed to Bitcoin’s market cap rising so high.
- Global awareness: Growing involvement from institutional investors and wider public interest raised demand and increased Bitcoin’s market cap. Its borderless accessibility and presence on all major crypto exchanges attracted a diverse user base. As more people recognized and adopted Bitcoin, its utility and value proposition grew, enhancing its market cap.
- Potential influence of backers: Bitcoin whales (those with large holdings) or backers holding significant amounts of the currency can also influence Bitcoin’s market cap. Their buying and selling activities can create short-term price swings, and their sentiment toward Bitcoin can influence the overall market sentiment and price. Although Bitcoin’s decentralization is a safety net, these heavyweight investors can influence Bitcoin’s value in the short term. Well-known Bitcoin whales include Tesla CEO and co-founder Elon Musk, intelligence firm MicroStrategy’s CEO and co-founder Michael Saylor, and Digital Currency Group’s CEO and founder Barry Silbert.
Finding the best coins based on crypto market capitalization
Although Bitcoin ranks highest by crypto market capitalization, some other top coins by market cap are:
- Ethereum: Often dubbed the ‘king of altcoins,’ Ethereum is the second largest cryptocurrency after Bitcoin. It boasts a market capitalization of around $274 billion at the end of 2023, positioning it as a top contender when you judge coins by market cap. Some of the top whales of Ethereum are Beacon Chain Contract, Binance, and Kraken. ETH is a top contender for investors because of its versatile utility, game-changing smart contracts, and thriving DeFi ecosystem. Its blockchain forms the backbone of many crypto projects and NFT games. Additionally, its chain hosts many top-performing cryptocurrencies, such as USDT and LINK.
As Ethereum is at the heart of the decentralized revolution, brand new projects are launched on the chain every day. This leads to increased demand for ETH, as users need it to participate in ICOs (Initial Coin Offerings), buy NFTs, or interact with various decentralized apps (DApps) on Ethereum. This increased demand can contribute to a rise in the price of ETH, and in turn its market cap.
- Tether USDT: Tether is a crypto stablecoin pegged to the US dollar. As a stablecoin, it provides price stability and protects investors from the fluctuations and volatility of the crypto market. As such, it is a haven for crypto investors during periods of high volatility. It has a $91 billion crypto market capitalization at the end of 2023 and is one of the most significant crypto stablecoins. The reason behind this significance is people’s preference for USDT over USD.
People prefer USDT over USD due to faster blockchain transactions, lower transaction costs, and wider access to crypto features such as margin trading and DeFi integrations.
- Solana: With a market cap of around $40 billion at the end of 2023, Solana ranks amongst the top coins by market cap. It is known for its fast transaction speed, low transaction fees, a unique consensus mechanism combining Proof-of-History and Proof-of-Stake, and a highly scalable and secure network. Its rapidly growing DeFi ecosystem and NFT marketplace have gained significant momentum, amplifying its growth potential. Furthermore, unknown whale activities have also contributed to its increasing market cap.
- BNB: BNB or Binance Coin is the native token of the cryptocurrency exchange Binance. It was launched in 2017 and has a market cap of around $40 billion at the end of 2023. The BNB price crashed recently as the Binance CEO stepped down. However, the reaction was short-lived, as the prices rebounded soon afterward. It was expected, given that Binance offers its users a whole ecosystem of functionalities. Plus, BNB forms an integral part of many successful Binance sub-projects.
- XRP: XRP is a cost-effective, fast, scalable, and less energy-intensive altcoin used by Ripple Labs to facilitate transactions on its network, known as the XRP ledger. It facilitates efficient international payments and faster cross-border transactions, supports NFT projects, and the development of decentralized applications (DApps) and DeFi protocols. Despite the various use cases, XRP faced a lawsuit that significantly impacted its price. However, the final ruling favored Ripple Labs, leading to an XRP price rally. Ultimately, XRP is positioned high on the leaderboard of top cryptocurrencies, with a market cap of around $33 billion at the end of 2023.
Going beyond market cap for identifying the ‘best coins’
Crypto market capitalization is one of the many metrics to consider when evaluating cryptocurrencies. It shouldn’t be the only metric, though, because by taking it as the sole metric, you ignore factors like technology, real-world use cases, and community presence. These factors often contribute to future growth regardless of the current market cap.
For example, even though Solana ranks fourth among coins by market cap, it emerged as one of the best performers in the second week of November 2023, with almost 50% weekly returns.
Thus, you must go beyond the market cap to find the best cryptocurrencies. You must:
- Consider a mix of large-cap, mid-cap, and small-cap coins based on risk tolerance and investment goals.
- Evaluate the projects’ underlying technology, real-world applications, and the team’s experience and competence.
- Gauge community involvement, project updates, and overall sentiment to assess the long-term viability of the token.
- Monitor industry developments and research promising new projects with unique technology and solutions.
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Bitcoin dominates the cryptocurrency landscape. Its colossal market cap results from its first-mover advantage, scarcity, and global recognition. As a result, altcoins like Ethereum, Solana, and Binance Coin trail behind. Yet, the crypto market capitalization alone doesn’t define a coin’s worth. It is crucial to account for other factors like technology, community, and use case before investing in crypto.
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