(summary at the bottom if you don't want to read the whole post)
Hi guys, I wasn't planning on posting again today but I was given the inspiration for this post from someone who commented on one of my other posts. This just shows the power of voicing your opinion and starting discussions on Steem! The topic I am going to talk about is Market Capitalization in relation to Cryptocurrencies and why you shouldn't be comparing each cryptos market cap to each others.
First of all, what is Market Capitalization? It is basically the amount of money that has been invested in a cryptocurrency (or any financial asset), and is calculated in the following way:
So why should you not compare the Market Capitalization of, let's say, Ripple (XRP) to IOTA(IOT)? Well the main reason is actually really simple, Ripple has a different use case (banking) than IOTA (internet of things resource sharing). The banking market can run into the multiple trillions and even quadrillions of dollars range globally, while for IOTA's uses, the internet of things global market size is said to not reach $457 billion until 2020 (https://www.forbes.com/sites/louiscolumbus/2017/12/10/2017-roundup-of-internet-of-things-forecasts/#140727d51480).
This of course let's us understand that some cryptocurrencies have much more room to grow, while others might not have a lot of room to grow. I suggest when you are thinking about investing in any cryptocurrency, you should ask yourself these questions (and more) in relation to market cap, supply and price:
How much competition has this cryptocurrency got in this industry and is it currently the leading cryptocurrency for this use case? If not, why do you think it will overtake the leading one?
What is the global size of the industry that this cryptocurrency aims to become successful in, and how does this relate to the crypto's current market cap?
Is this cryptocurrency innovative in any way? If not, it is probably not going to become big within any industry, if it doesn't add any significant value, or solve any major problems.
Looking at the charts, has price been rising constantly and not dropped at all yet? As I have said in my other posts, markets must correct at some point and so buying before price corrects is obviously not the best time or price to get in at.
What is the maximum circulating supply, and how does this compare to the current circulating supply? For example, if there are 1 billion coins in circulation now and the price is $1, and there will be 5 billion in circulation maximum, is the cryptocurrency operating within an industry which will allow enough growth to offset this increase in circulation and let the price rise substantially to profit from?
Obviously there are many more questions you should ask yourself before investing in a cryptocurrency, and you should certainly read their whitepaper, take a look around their website and do some digging on anything else you think is relevant.
That's it for this post guys hope I cleared some stuff up for you about Market Capitalization. If you found this post educational or you agree with it, up-vote and follow me and I will follow you back!
Summary:
Market Capitalization = Price Per Coin x Circulating Supply.
Don't compare one crypto's market cap to another unless they are targeting the same use cases (i.e, both into banking).
When researching a crypto ask yourself many questions like is it innovative, is it the leader for its use case, how big is the market it is targeting, etc.
Buy when price has retraced a lot and not when it is at an all-time-high.
Legal Disclaimer: This is just how I go about researching and deciding how to invest in which cryptocurrencies, you should decide for yourself what investment plan you will follow.