So many people have difficulty trying to figure out this cryptocurrency lingo and its implication on the ever-growing crypto world. Market Capitalization, Market Supply and Volume are constantly being used in the digital currency news creating a need for better understanding of this terms so as to make informed investment decisions. Understanding their impact on the price of the coin and their relation to price fluctuations if any is key to cryptocurrency believer.
Market Capitalization also is known as Market Cap, is what is used to give users the real size of the currency. It is used to rank the coins giving you the total dollar value of the coin. It is calculated by multiplying the price by the circulating supply (Price*Circulating Supply). Market Cap effect can be looked at in two ways. One, it might make the coin appear cheap when the circulating supply is high when in the real sense it is not. It is just that the coins circulating are many so their worth drops. The second way of looking at it is, when the price of one coin is high, the market cap is low probably translating to fewer coins.
An investor can use the Market Cap forecast potential gains. The bigger the Market Cap is the more capital is needed to double it. The coins with smaller market cap have higher chances of potential growth than those with huge Market Caps. It is important to note that cryptocurrencies are held by a few individuals who can artificially inflate the prices. Hence one cannot rely on the market cap alone to get the value of the crypto as it is done for diverse markets.
However, Market Cap comes in handy when you are making a comparison between different coins. It is more accurate when you use the market cap instead of the price of the cryptocurrencies.
This is mainly referred to as circulating supply. It is the measure of the coin currently available and circulating in the market. These are the coins found in the general public’s hands. Some coins like Bitcoins have a fixed circulating supply so knowing the market supply helps you to factor in deflation into your investment analysis. Locked coins or those in reserves cannot affect the market prices of digital currencies hence, the use of circulating supply as the best metric to calculate Market Cap.
This indicates how much of a particular coin has been traded within 24 hours. The less the coins the more volatile the prices are. Volume indicates the strength of a currency and with it, you get a measure of the demand for the coin.
In order to value a cryptocurrency, one should look further into the technology and the developer network supporting the coin. Currently, a coin is worth what someone else is willing to pay for it. Creating a value based more on demand and supply rather than the market cap, supply and volume of the coin.