When it comes to the performance of a cryptocurrency, the most obvious indicator that is usually used first is the price at that point. It seems like a pretty simple relationship: the more a cryptocurrency is worth in real money, the more value it has. This leads to flawed simplifications, for example that a cryptocurrency is “better” or has a higher quality if it has a high price.
Market capitalization is an often overlooked indicator, but it pretty accurately reflects the health and popularity of a cryptocurrency.
Regardless of whether cryptocurrencies should be classified better or worse It’s a fundamental mistakeBeyond price, there are other indicators that you should consider whether you want to know the relative value of a cryptocurrency and whether or not it is a good idea to invest in it. One of the most reliable is market capitalization, or market capitalization. But what is it exactly?
Market capitalization is a way of Calculate the “size” and popularity of a cryptocurrency. It is calculated by multiplying the current value of a cryptocurrency by the amount available. That is, if a cryptocurrency has 1,000,000 units in circulation and each costs five euros, its market capitalization is 5,000,000 euros.
However, the market capitalization does not correspond to the money that a cryptocurrency moves at any given point in time. In the previous example, if the cryptocurrency increases its price from five to seven euros, the market capitalization is 7,000,000 euros. However, this does not mean that 2,000,000 euros have hit the market.
It’s a pretty good metric for calculating the size, popularity, and performance of a cryptocurrency and its associated project. This way, considering the supply available, in addition to the price, you can get an idea of how much a cryptocurrency could be worth in the future. If there are billions of tokens of a crypto and their value is 50 cents, for example, it is unlikely to hit prices close to Bitcoin as it would have an exorbitant market capitalization.
Let’s look at a real example. Bitcoin’s market capitalization is the highest and is currently equal to $ 1,079,227,630,853. The price for each of the more than 18,500,000 BTC is around $ 57,000 per bitcoin.
On the other hand, Ripples (the fourth largest) is two orders of magnitude smaller and equates to $ 44,574,794,840. However, the difference in price and quantity in circulation is abysmal. There are currently 45,404,028,640 units priced close to the dollar.
Despite the low price of Ripple, its market cap is the fourth largest and indeed one of the most popular cryptos. She is the favorite of companies devoted to banking and who have chosen to enter the world of banking. Cryptocurrencies.
The market capitalization is therefore a very good indicator when deciding whether to invest or not in a cryptocurrency, but of course it is not the only one and good research is always required before investing any money.