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Market cap bitcoin explainedMarket Capitalization Definition
Given its simplicity and effectiveness for risk assessment, market cap can be a helpful metric in determining which stocks you are interested in, and how to diversify your portfolio with companies of different sizes. These large companies have usually been around for a long time, and they are major players in well-established industries. Investing in large-cap companies does not necessarily bring in huge returns in a short period of time, but over the long run, these companies generally reward investors with a consistent increase in share value and dividend payments.
Mid-cap companies are established companies that operate in an industry expected to experience rapid growth. Mid-cap companies are in the process of expanding. They carry inherently higher risk than large-cap companies because they are not as established, but they are attractive for their growth potential. These companies are considered higher risk investments due to their age, the markets they serve, and their size. Smaller companies with fewer resources are more sensitive to economic slowdowns.
As a result, small-cap share prices tend to be more volatile and less liquid than more mature and larger companies. At the same time, small companies often provide greater growth opportunities than large-caps. It is inadequate to value a company because the market price on which it is based does not necessarily reflect how much a piece of the business is worth.
Shares are often over- or undervalued by the market, meaning the market price determines only how much the market is willing to pay for its shares. Although it measures the cost of buying all of a company's shares, the market cap does not determine the amount the company would cost to acquire in a merger transaction.
Two main factors can alter company's market cap: significant changes in the price of a stock or when a company issues or repurchases shares. An investor who exercises a large number of warrants can also increase the amount of shares on the market and negatively affect shareholders in a process known as dilution. Fundamental Analysis. Top Stocks. Mutual Fund Essentials. Financial Analysis. Corporate Finance. Your Money. Personal Finance. Your Practice. Popular Courses. Part Of.
Introduction to Company Valuation. Financial Statements. Financial Ratios. Fundamental Analysis Basics. Fundamental Analysis Tools and Methods. Valuing Non-Public Companies. What is Market Capitalization Market capitalization refers to the total dollar market value of a company's outstanding shares of stock.
These blocks are known, collectively, as the "blockchain" -- an eternal, openly accessible record of all the transactions that have ever been made. Read: Blockchain explained -- it builds trust when you need it most. Using specialized software and increasingly powerful and energy-intensive hardware, miners convert these blocks into sequences of code, known as a "hash.
It's like thousands of chefs feverishly racing to prepare a new, extremely complicated dish -- and only the first one to serve up a perfect version of it ends up getting paid. When a new hash is generated, it's placed at the end of the blockchain, which is then publicly updated and propagated.
For his or her trouble, the miner currently gets Note that the amount of awarded bitcoins decreases over time. Ultimately, the value of a bitcoin is determined by what people will pay for it. In this way, there's a similarity to how stocks are priced.
The protocol established by Satoshi Nakamoto dictates that only 21 million bitcoins can ever be mined -- about 12 million have been mined so far -- so there is a limited supply, like with gold and other precious metals, but no real intrinsic value. There are numerous mathematical and economic theories about why Nakamoto chose the number 21 million. This makes bitcoin different from stocks, which usually have some relationship to a company's actual or potential earnings.
Without a government or central authority at the helm, controlling supply, "value" is totally open to interpretation. This process of "price discovery," the primary driver of volatility in bitcoin's price, also invites speculation don't mortgage your house to buy bitcoin and manipulation hence the recent talk of tulips and bubbles. Bitcoin has made Satoshi Nakamoto a billionaire many times over, at least on paper. It's minted plenty of millionaires among the technological pioneers, investors and early bitcoin miners.
If you're willing to assume the risk associated with owning bitcoin, there is an increasing number of digital currency exchanges like Coinmama, CEX, Kraken and Coinbase -- the largest and most established of them -- where you can buy, sell and store bitcoins.
Getting started is about as complicated as setting up a Paypal account. With Coinbase, for example, you can use your bank or Paypal account to make a deposit into a virtual wallet, of which there are many to choose from.
Once your account is funded, which usually takes a few days, you can then exchange traditional currency for bitcoin. You can sell it. Or you can just hang on to it. Note that there are no inherent transaction fees with bitcoin, although exchanges like Coinbase typically charge a fee when you buy or sell.
Short, qualified answer: Yes, for now, as long as -- like any currency -- you don't do illegal things with it. For instance, bitcoin was the sole currency accepted on Silk Road, the Dark Web marketplace for drugs and other illicit goods and services that was shuttered by the FBI in Since then, bitcoin has largely evaded regulation and law enforcement in the US, although it's under increased scrutiny as it attracts more mainstream attention.
Legal and regulatory hazards aside, as both an investment and currency, bitcoin is very risky. When you wake up in the morning, you know pretty precisely how much a dollar can buy. The financial value of a bitcoin, however, is highly volatile and may swing widely from day to day and even hour to hour. Exhibit A: December Bitcoin transactions cannot be traced back individuals -- they are secured but also obscured through the use of public and private encryption keys.
This anonymity can be appealing, especially with companies and marketers increasingly tracking our every purchase, but it also comes with drawbacks. You can never be certain who is selling you bitcoin or buying them from you. Opportunities for money laundering abound; in , authorities in the Netherlands arrested 10 men for just this. Theft is also a risk.
There are few avenues for pursuing refunds, challenging a transaction or recovering such losses. Once a transaction hits the blockchain, it's final. Because bitcoin is so new and decentralized, there is plenty of murkiness and many unknowns.
Even the technical rules for mining are still evolving and up for debate. The IRS views bitcoins as property, not currency. Even Coinbase, the most established of them all has struggled to keep up with demand, plagued by site outages, scaling issues and customer service complaints.