What is capitalization and what role does it play when trading cryptocurrencies?
If you want to make consistent money on the stock exchange, then you should understand that stock trading is more than just buying when the rate goes up and selling when the rate goes down.
In order to make a successful transaction, you need to take into account not only the existing trend, but also the factors that confirm it.
One of these factors is the market capitalization of the asset, and it does not matter whether the asset is a company stock or cryptocurrency.
The easiest way to understand the essence of capitalization is through the example of securities, or, more precisely, the company that issued them for circulation.
For example, if there are 1,000 shares of a company in circulation on the stock exchange at a price of $100, then the market value of the company as a whole is 100,000.
It is generally accepted that the higher the capitalization index, the larger and more solid the company and the stronger the confidence of investors in it.
Although in fact, market capitalization does not always reflect the true state of affairs and can be artificially inflated through stock exchange manipulations with securities.
At the same time, the concept of capitalization does not apply to currencies, but cryptocurrencies operate on a slightly different principle and have their own level of capitalization.
The influence of capitalization on the cost and popularity of cryptocurrencies
Cryptocurrencies in their essence are more reminiscent of securities than classical currencies, their quantity in circulation is strictly defined, and the market value of one coin forms the total capitalization of the asset as a whole.
Professional investors in the stock market rarely take this indicator into account in their calculations, but with cryptocurrencies the situation is completely different:
It just so happens that on most crypto exchanges and analytical sites, assets are sorted precisely by capitalization.
That is, assets with a higher total value are at the top of the list, because of this they have higher liquidity and, as a result, lower commissions on transactions.
The second point is the conditional capitalization levels, after reaching which the cryptocurrency continues to grow, arousing interest among new investors. An example would be 1 trillion for Bitcoin.
In turn, a decrease in capitalization always confirms a downward trend and stimulates traders to sell.
It is clear that this factor plays only a supporting role and is more of an emotional nature, but it is still advisable to take into account the capitalization of cryptocurrencies when planning your transactions.
Useful information for trading cryptocurrencies - https://time-forex.com/kriptovaluty