Many people believe that the Cryptocurrency Market cap is the single most important indicator of the health and value of a Cryptocurrency. But there are quite a few serious issues with that approach. First, it is not exactly that simple to calculate market cap. Second, it s not even that market cap alone isn’t a useful financial tool for, it is. But more importantly, it is crucial to recognize that most cryptosystems come with very significant risk factors, and how to properly compensate for those risks is paramount.
The simple point of market cap is to look at how much value each Cryptosystem has in terms of existing shares in the marketplace. For instance, if you are looking at the etherchain and see that it has around $3.5B in daily trading volume, then obviously that is a very large investment in the present market. What you must consider however is that etherchain does not have any physical coins, only smart ether coins (which is what you will probably be holding). Therefore, you would like to determine how much existing shares of the business can potentially be impacted by the trading volume, which in this case would translate to the current price per share. This is the fundamental assessment you need to make when looking at the Cryptocurrency Market cap.
Now, the second issue that is often overlooked is the quality of the metrics used to determine the Cryptocurrency market cap. Unfortunately, there is quite a bit of inaccurate data out there that gets passed around, and unfortunately a lot of it is designed to simply support the point of view of whatever company is promoting it. The problem is that people have a tendency to use the most accurate metrics available, ignoring the rest. By the end of this article, I hope to provide you with a good foundation on which to base your Cryptocurrency market cap calculations on.
As previously stated, the first thing we are going to look at is the total number of outstanding coins in circulation. Let us assume for a moment that all of the current tokens in circulation are currently valued at a total cost of zero dollars. This in itself is already an indicator of a healthy Cryptocurrency market cap. While a total number of outstanding coins may not necessarily indicate a healthy market since we are dealing merely with a highly liquid financial instrument here, the fact that it is the only thing that exists proves that something is being done to keep the liquidity in the marketplace and investors happy. In addition, as we will shortly see, there are many ways of measuring liquidity and the Cryptocurrency stock market cap cannot be ignored here.
The next thing that we are going to take a look at is the current price per share for each of the top fifty Cryptocurrencies. It is important to note that this does not include the value of each individual coin as we will shortly see, but we are simply looking at the total number of circulating coins. There are two types of measurement for the price per share; fundamental and technical. Fundamental measurements are based entirely on supply and demand and technical measurements look at things like investor sentiment and how fast the price of a particular coin changes.
There are several different methods used in the calculation of the Cryptocurrency market cap. The most popular is called the present day value (or EDV). This calculation uses the present day supply and demand to determine the amount of circulating supply needed to maintain the current price of each coin. The present day value of the total supply can be determined by dividing the present price by the number of units in circulation.
The last piece of data we are going to discuss is the image credit. This refers to the value provided by one or more major media sources. For example, a company’s logo might be used on a trading forum, their website, an advertising campaign, or a commercial. If these images are used in ways that drive a significant amount of traffic then the company’s image credit will be raised. This value is derived by multiplying the present day supply by the amount of traffic referred to the images. In the case of Cryptocurrency the image credit is measured in the number of trades made and not the overall value of each trade.
Now that we have reviewed the three main metrics most commonly used in determining the value of Cryptocurrency it should be easy for you to see how they work. When you buy or sell a particular Cryptocurrency you are essentially buying a percentage of the total market cap. You can also use the three categories mentioned above to determine the value of a particular Cryptocurrency and use it as a basis for buying and selling your trades. Understanding the underlying metrics used to determine the value of your trade goes a long way in helping you succeed with Cryptocurrency and other Virtual Currencies.