Market cap allows you to compare the total value of one cryptocurrency with another so you can make more informed investment decisions. Cryptocurrencies are classified by their market cap into three categories:
Large-cap cryptocurrencies, including Bitcoin and Ethereum, have a market cap of more than $10 billion. Investors consider them to be lower risk investments because they have a demonstrated track-record of growth and often have higher liquidity — meaning they can withstand a higher volume of people cashing out without the price being dramatically impacted.
Mid-cap cryptocurrencies have market caps between $1 billion and $10 billion – they generally are considered to have more untapped potential upside but also higher risk.
Small-cap cryptocurrencies have a market cap of less than $1 billion and are most susceptible to dramatic swings based on market sentiment.
Market cap is a useful metric for comparing the total value of cryptocurrencies, but market trends, a cryptocurrency’s stability, and your own financial situation all need to be considered when weighing the risks of any investment.