in cryptocurrency •  last year

We're going to discuss what Market Cap is and how useful it is to understand the Market Cap for coins you are trading. It's also important to understand the fluctuation of Total Market Cap to see how the public is moving funds in and out of our crypto-economy.

What is Market Cap?

The "cap" is a term for capitalization, which is the used to classify a coin's size in the market. The size is seen as a coin's market value as a whole and is determined by the price and circulating supply. CoinMarketCap is the best resource in determining a coin's Market Cap since it contains data from all exchanges that a particular coin is being traded on.

Here's an example of calculating Bitcoin's (BTC) Market Cap.

The price is calculated by taking the volume weighted average of all prices across all exchanges that BTC is being traded on.

The circulating supply is found by adding together all current BTC flowing through the exchanges that it is being traded on.

What is Total Market Cap?

Total Market Cap is simply the combined Market Cap of all cryptocurrencies in circulation on all exchanges.

As we look at the last year's worth of data, we can see that Total Market Cap has rose over 10x.

Now why is this important for protecting my positions?

Well, the Total Market Cap is the representation of everyone's funds invested in cryptos. As the Total Market Cap increases, the public has more money invested in cryptos, which will reflect a higher trading price for particular coins. This won't be a positive correlation for ALL coins, but on average, it is higher.

Contrary, if Total Market Cap is decreasing, you'll find that the public is pulling out of the markets and converting their holdings back into fiat. The sentiment here, is that these people want to exit the market to either collect their profits or cut their losses. As the Total Market Cap continues to decrease sharply, it then becomes fear in the public that the markets are crashing, which will cause panic and the price of cryptocurrencies will drastically decrease.

This increase and decrease of Total Market Cap is natural and offers traders opportunity to protect their positions by exiting when the cap is high and entering when the cap is low.

There are two types of people in this market:

Investors who value a particular coin and HODL, and there's the traders who analyze the markets daily to buy and sell to catch the market swings. Total Market Cap is valuable for both, since it is an indicator of the entire market value.

For investors who HODL, the perceived practice is to hold and not look for months or years. Although that is great for long term holders, if the Total Market Cap is drastically decreasing, you should be able to find a better position because of the public psychology of panic selling.

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Don't end up like Hodor by HODL'ing...

For traders, drastic increases or decreases in the Total Market Cap is a gold mine since long and short positions are placed to ride waves.

Protect your Positions with USDT when Total Market Cap is Drastically Decreasing

Move your funds to USDT when you are noticing a large drop in Total Market Cap. Once you start seeing a slow down in the drop, a reversal can be imminent within the next few hours, days, or even weeks. Having your funds in USDT is similar to you exiting the market. You'll be able to find a better position to go long and you save yourself the loss of the drop in price of the coin you were holding.

Common Drops in Total Market Cap

Weekends and Holidays are known for drops in Total Market Cap. There can be various reasons for this. Traders who are not able to monitor their funds while they are out or on a vacation, will exit the market. Another reason is that since Weekends and Holidays are known to have negative impacts on the market, it becomes a self-fulfilling prophecy in which investors and traders leave the market to the protect their funds, which in turn drives down the Total Market Cap.

Only one month worth of data here...

Of course this isn't always true, but being on the lookout in these times will give you the edge so you're not left behind when the dust settles for days or weeks. Do your research and look at the historical trends of Total Market Cap.

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Gotcha.. won't do that next time!

Good stuff!! Love using CoinMarketCap for looking at this stuff. Very valuable.


Agreed! Thanks for reading.

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Great read

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