10 Differences Between Stock and Crypto Market Cap

What are the differences between stock market cap vs crypto market cap? Market cap is a very common term used in the financial industry whether it involves traditional stocks or the relatively new digital asset class – the crypto coins.

You too may have heard of it but may not know what it really means and how it affects trading.

Market cap is more of an ‘insider term’ for any average person to know about it. Especially if you are a beginner it may be really hard to decipher such terms used for investing. This is where this article will help you significantly.

Here are the main differences between crypto market cap and stock market cap that you should be aware of. Check out Stock Trading vs Crypto Trading.

When you know these differences it will help you a lot to evaluate and decide whether you want to deal with the stocks issued by a publicly traded company or want to focus entirely on crypto coins that come with a huge promise and potential.

10 Differences Between Stock and Crypto Market Cap

Differences Between Stock Market Cap vs Crypto Market Cap

Ideally, the market cap signifies the amount of money you need to pay to purchase all the shares of a company or all the crypto coins that are available in the market. However, this may not be the true value necessarily.

Typically, you should not focus entirely on the price of one particular share or crypto coin while choosing the one to invest in.

In fact, you should look at the market cap to know how exactly the market values the particular product and then invest in one.

Here are the major differences between a crypto market cap and a stock market cap which will help you to make a more informed decision.

1. Significance

The market cap of stock or share of a company denotes how well the specific company is performing at the given point in time.

On the other hand, the crypto market cap denotes the value of the particular coin and not of the company that has issued it.

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2. Accuracy

In the case of stocks, the market cap seems to be far more accurate. The simple and most significant reason behind this is that the entire number of shares available and issued by the company is known and therefore it defines exactly how the ownership of the particular company is distributed among the shareholders.

However, as is in the case of the crypto market cap, it is far from accurate, especially when you consider the market cap of a coin to judge the value of the company.

The simple reason is that it is not known how many of the available coins in circulation are in fact locked up in different digital wallets of the holders and are lying dormant.

3. Velocity

Using the crypto market cap, it is also not possible to determine the true velocity of the specific crypto coin with which it moves. This means that you will once again not be able to judge the actual value of a crypto coin.

On the other hand, in the case of stocks, you can know the velocity pretty well and therefore decide whether the particular financial instrument or commodity is worth investing in.

4. Revenue and Growth

Apart from the value of the stocks or shares, the market cap also indicates the growth potential of the company as well as its ability to generate revenue. It therefore also signifies the dividends the company is able to pay.

However, in the case of crypto coins, the market cap usually speaks about its current ability but does not speak in volume about its future prospects.

It is for this reason you should not rely only on this specific metric to know the prospects of a crypto coin and instead use other indicators and analytical tools for it.

5. Holdings

Simply looking at the market cap of the stocks you can clearly judge the percentage of the total shares held by the founders as well as other big shareholders.

In contrast, when you consider the crypto market cap, you may be able to determine the holdings of the company behind the particular crypto project but it would be nearly impossible to say how much the ‘crypto whales’ are holding.

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This is due to the simple reason that the crypto whales tend to keep the tokens lying dormant in their wallets or simply ‘eat’ them up.

6. Method of Calculation  

When it comes to calculating the market cap of a crypto coin, the price of an individual coin is multiplied by the total number of coins in circulation as of now. You can also calculate the market cap of the entire market considering all different types of crypto coins in circulation.

As for the market cap of stocks, the method of calculation followed is almost the same but it is the price of one particular share multiplied by the total number of outstanding shares of the company.

7. Metrics Used

There are lots of different financial ratios and metrics used traditionally to determine the market cap of stocks and shares.

It includes price to earnings ratio, the current ratio, earnings on each share, growth of the earnings, price to free cash flow ratio, price to book value ratio, and enterprise value to EBITDA which stands for Earnings before Interest, Taxes, Depreciation and Amortization.

However, when it comes to evaluating the crypto market cap, there are not many metrics available because the companies issuing the crypto coins usually do not publish any financial statements.

Typically, the market cap of a crypto asset is calculated on the basis of the volume weighted average of the prices of the coin that are available from different crypto exchanges.

8. The Age Factor

The age factor of the stock market also affects the evaluation of the market cap of a particular product. The performance of the asset in the past five years is enough to make an accurate analysis.

Also, for establishing the market cap of the stock of a company for the first time, the Initial Public Offering is used.

However, the crypto market is too young and therefore there is not much historical data available to calculate the market cap of a coin more effectively. Therefore, whatever metrics are available and existing are used.

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9. The Trust Factor

The experts in the crypto industry claim that the market cap of crypto coins is not trustworthy due to the fact that people with biased interests in a specific crypto project can easily manipulate the market cap itself.

And, for that, they do not need to put in much of an effort. This is done with the sole intention to promote the market cap so that more and more investors get attracted to it.

However, in case of the stocks, there is no possibility of such manipulations in the market capitalization which is why these are more trustworthy than crypto market caps.

This is because stock markets are regulated by the central authorities and such manipulations are prohibited in most countries such as in the United States under Section 9(a) (2) [1] of the Securities Exchange Act of 1934, in Australia under Section 1041A of the Corporations Act 2001, and in the European Union under Article 12 of the Market Abuse Regulation.

10. The Volatility Issue

The crypto market is extremely volatile and therefore the market cap of the crypto assets is affected dramatically with frequent changes.

On the other hand, a stock market is far less volatile and therefore the market cap is quite stable and more reliable.

Conclusion

Knowing the differences between the market cap of stocks and crypto will enable you to know which particular asset is more valuable to invest in.

However, if you are into crypto trading, this alone may not be the best metric to judge the value.