Any seasoned cryptocurrency trader or investor should know the concept of coin price and market cap. That is not the case though; unfortunately, most investors are hooked on to just the coin price. Focusing on just the coin price is not the correct way to judge whether you should invest in a particular cryptocurrency or not. The market cap of the currency you want to dabble in should also be taken into consideration in order to get a fair picture of the market.
There is more to the cryptocurrency market than just making the right call and the typical buy and sell strategy that most people seem to adopt. 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 their investment will automatically go up. This is a very naive and quite uninformed idea.
Last week we talked about the aspects that you need to consider when thinking of investing in cryptocurrencies like legal discrepancies, security, soaring values, etc. There’s one more thing that newbies don’t even consider.
Most newbies are absolutely clueless about the inner workings of the market, unlike the seasoned cryptocurrency enthusiasts. To help you with it, let’s talk about coin price vs. market cap.
Why Check Market Cap Over Coin Price
If you don’t know what market cap is then let me tell you. Market cap or capitalization is a well-known metric for traditional securities but it has unique implications in crypto; it is a measure of the value of security.
The market cap usually consists of multiplying the number of outstanding stock shares by the current stock price. In crypto, this practice is defined as the circulating supply of tokens multiplied by the current price.
In simpler terms, to get the market cap of a particular cryptocurrency, multiply the value of the coin with the number of coins in existence. So, when you decide to purchase cryptocurrencies, look at the percentage of market cap you are buying so that you know you are making an informed decision based on the market.
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.
You sure can learn a lot about cryptocurrencies and their standing just by checking market caps. Bitcoin is still in the top running with roughly 55% of the total crypto market cap. It is also the reason that people who don’t know much about the market have still heard about Bitcoin. Many don’t even know that there are other cryptocurrencies.
Bitcoin is the most valuable coin; it is roughly three times as valuable as Ethereum. Ethereum has the second-place running in value but there is still a huge gap between Bitcoin and Ethereum. The same thing goes for Ethereum and third-place Ripple – also a large gap between them.
Understanding the value of market cap and using the information can effectively make you one of the major players in the market. It is a quick way to gauge a coin’s value. So, if you are new to the game, be sure to always check the market cap of a cryptocurrency before you decide to bet your money on it.