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How to Use Market Cap & Supply to Determine a Crypto’s True Value

How to Use Market Cap & Supply to Determine a Crypto’s True Value

Market Cap in Crypto

Market cap primarily indicates the total value of coins present in the market and is a crucial factor in determining the ranking of coins in term of worth. The general understanding of the market cap in regards to cryptocurrency indicates the amount of capital invested in a specific cryptocurrency. Multiplying the supply of coin with its price will provide you with the value of the market cap. We get the market cap with the help of the following formula.

Market Cap = Price x Circulating Supply

There is always a current price for every coin and a definite count in the market that is required to determine the market cap. The value of the coin’s circulating supply is equivalent to the fiat currencies market cap. In an example of Bitcoin with a circulating coin supply of 17,643,562 BTC and a rate of $4,000, the product of both gives a market value of $70574248000.

Supply in Crypto

A coin’s supply can be represented in two ways, in terms of its entire supply and circulating supply. The complete supply term relates to the number of particular coins that are either in circulation and pending for mining or lying in a smart contract. The circulating supply coins, on the other hand, depicts the total number of coins that exists in the market. One mutual thing to mark is that as the circulating supply increases, the price per coin declines and vice-versa because it is dependent on other factors such as market confidence in that particular coin and its network influence. However, there are factors other than this that contributes to determining the market value of cryptocurrency. Some of these are the demand, the overrated coin due to a promotional accomplishment, project sponsorship, exchange-traded, and even the sensitive behaviour of speculators and hedgers.

It is a common thing to notice that cryptocurrencies with higher supply get the advantage of both added values and higher price in comparison to its counterpart. Higher demand in the market is the apparent reason for this. It is a well-known fact of economics that higher the demand, higher the price. Moreover, losing the private key of the wallet will bring about the removal of the coins from the market. Even a tech engineer cannot guarantee to recover the money because the credentials of the private key were lost. As a consequence, it could also influence the digital currency’s market cap.

Conclusion

The original formula of deriving the price and market cap could be irrelevant while considering the actual values. Moreover, there isn’t any appropriate formula or technique to extract the actual results at all times. The factors responsible for the impact on cryptocurrency’s value includes media presence, exchange listing, government regulation, technology, rumours, politics and even the behaviour of investors. 

We can conclude by this example that if the coin supply is 10 million and the market cap is $10 million you don’t need $10 million to double the coin price, its a myth. It can happen with $100,000 itself, or it may not work even with $20 million. Thus the total amount of money invested in a coin is not the market cap. A pricier coin can be cheap because it is too limited in supply whereas a cheap coin may be expensive because of its supply capacity.

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