Cryptocurrency trading: Price vs market cap, or why the price of cryptocurrency isn’t all that matters

Imagine a situation where you look at the prices of cryptocurrencies on some of the many exchange platforms and see that the Verge (XVG) currently costs only $0.006. You’d wonder if you should buy it for, say, $500 and wait a year hoping that it might cost $100, which means you’ll get quite rich.

However, if you consult an expert about it, they will tell you that you won’t get rich, although Verge costs incredibly less compared to Bitcoin (BTC) – about which you can inform yourselves by visiting places to buy Bitcoin with a credit card, or via bank transfer, or with a debit card – and there are more XVGs to mine that BTCs. This is why…

What’s a marketcap?

Simply put, a market cap is a product of the price of a commodity and its quantity in the market. At the time of writing this article, the price of BTC is $9,087.33. Multiplied by the available number of BTCs, which is 18,417,865 we come to a figure showing the market cap for BTC totals $171,836,738.045.

Market cap (Market Capitalization), therefore, is an important indicator of the strength of cryptocurrency (it’s also used for other types of trading). It can be said that market cap is more important than the price of cryptocurrency (although it’s a part of it).

Herein lies the answer to why we said that XVG won’t cost $100 because, with the amount available on the market, the market cap for XVG would be significantly stronger than Bitcoin (and by several times). The price of cryptocurrency is, therefore, less important when investing.

Make a comparison table before investing in cryptocurrencies

Before investing in a cryptocurrency, it’s wise to make a comparison table that shows the value of the cryptocurrency as a whole (by available quantities) instead of individually. This is done through “normalizing” it by comparing it with BTC, and then showing how much some currency would be worth then, in order to truthfully compare it with the others. What does the equation look like? Price of cryptocurrency (X) available amount of cryptocurrency (/) available amount of BTC.

The advice is to make this table first when considering your options in regard to currency. Another thing to do is, if you already have some assumption (although these are usually mere wishes) about the value of a currency in the future, to multiply that value by the amount available (as well as the maximum planned) and see where it would stand relative to the others. If you expect a new “cheap” cryptocurrency to surpass the Bitcoin market cap in just a few months – think again. It seems extremely unrealistic to us…

So how do you know which currency to invest in?

It’s impossible to give an accurate projection. Explore the currency that caught your attention. Learn on which exchanges they can be found on, who the founders and investors are, and which companies are behind that currency, what its “road map” is, etc. Of course, also keep in mind the basic analysis described in this text.

Over 1,000 different cryptocurrencies (and/or tokens) are available in the market. Whether some of them will succeed or not doesn’t even depend on what they enable (there are those who’re incomparably faster in development than Bitcoin, but they aren’t doing well).

It’s up to you to make an estimate, think about the amount of money you’ll invest, guided by the principle: “How much I won’t be sorry to lose” and not “How much I want to earn”, and boldly start trading.

One thing is for sure – you won’t become a millionaire overnight. At least most of you won’t.

About Author

Jake Simmons has been a crypto enthusiast since 2016, and since hearing about Bitcoin and blockchain technology, he's been involved with the subject every day. Beyond cryptocurrencies, Jake studied computer science and worked for 2 years for a startup in the blockchain sector. At CNF he is responsible for technical issues. His goal is to make the world aware of cryptocurrencies in a simple and understandable way.

Comments are closed.