With the consistent surge in the value of cryptocurrencies, many first time investors have mistakenly assumed that they only need to invest in a good currency like Bitcoin and that’s it – their investment will automatically go up. This is a very naïve, and quite uninformed, idea. There is more to the cryptocurrency market than just the typical buy and sell strategy.
Although most cryptocurrency enthusiasts are well aware of the inner workings of the market, most newbies are absolutely clueless. To help you with it, we share two things that can enable you to assess the cryptocurrency markets more accurately.
What Cryptocurrency Enthusiasts Probably Won’t Tell You1. Coin Price Vs Market Cap2. Comparing With BTC
1. Coin Price Vs Market Cap
Any cryptocurrency trader should know the concept of coin price and market cap. But unfortunately, most investors are hooked on to just the coin price. This is not the correct way to judge whether you should invest in a particular cryptocurrency or not. You must also look at the market cap of that currency in order to get a fair picture of the market.
To get the market cap of a particular cryptocurrency, multiply the value of the coin with the number of coins in existence. Now, when you decide to purchase cryptocurrencies, look at the percentage of market cap you are buying.
For example, suppose that a particular coin is valued at $2, and there are a million coins in circulation. As such, the total market cap of the coin comes to $2 million. And if you plan to invest $10,000 into this cryptocurrency, you will essentially be buying 0.5% of the market cap.
This can effectively make you one of the major players in the market. So, be sure to always check the market cap of a cryptocurrency before you decide to bet your money on it.
2. Comparing With BTC
When comparing the value of a cryptocurrency, most people only look at its value in comparison to the USD. This is a very basic way to analyze a currency. In addition to the USD, you must also compare it to Bitcoin (BTC). Only then can you get a more accurate picture of the value of a specific coin.
For example, suppose that you wish to invest in Litecoin (LTC) which, lets say is valued at $250. If the prevailing value of BTC is $10,000, then it would mean that an LTC is one-fortieth the value of a BTC. Now, if the value of LTC remains stable at $250, but BTC increases its value to $12,500, then LTC will just become one-fiftieth the value of BTC.
This essentially means that while the value of LTC in terms of the USD has remained constant, its value in relation to BTH has dropped. And when investing in cryptocurrencies, you must ensure that all the coins increase their value in relation to BTC.
You should also keep in mind that the purpose of investing in Bitcoin is to make profits, not to inflate your ego every time you make the right call. So, stay away from such negative behaviors, focus exclusively on simply making the right choice, and your investing skills will be sharper by each coin.