Dear Steemians,
I had to repost one of my first article when I came on Steemit as I see so many Steemians being confused with valuation.
Funny also to see the different prices at the time I wrote this (Ripple was 0.18$ and Litecoin was $48 ^^).
The Price of a Coin is not Market Capitalisation
I see a lot of people writing about Cryptocurrencies sometimes mentioning the fact that this coin is “cheap” because it is worth only $1,8 or $0,00015. Therefore, if the Blockchain is interesting you should buy it.
Working in the finance industry, I almost choked when I read comments like this. I decided to take some time to help new investors.
The price of a single coin does not matter, AT ALL
The only metric that is worth looking at when investing in a blockchain is the Market capitalisation.
Market Capitalisation= Price of a single coin X Total Supply
Total Supply is either:
- The Number of coins on the market if the ICO is over and there are no planned increase of the supply or;
- If there is new supply being scheduled you should take into account this new supply (not available yet) as it should be reflected in the Market Capitalisation
For example, let's look at EOS who planned to do a 1 year ICO:
We know the total supply of EOS Tokens will reach 1bn, Market Capitalisation is:
1bn (total supply after the ICO is complete) X $1.88 (Current price) = $1,8bn Of Market Cap
And not: 282mn (Current Available Tokens) X $1.88 = $530mn
The price of a coin does not mean that the Blockchain using it is “valued” more than another blockchain using a less expensive coin.
Ripple, a cryptocurrency used for international payments is listed at $0,1828 whereas LiteCoin is listed at $48.
Nevertheless, Ripple Market Cap. of Ripple is worth $7bn whereas Litecoin Market Cap. Is worth $2,52bn despite the fact that LiteCoin is 262 times more expensive than Ripple.
It is the same principle for Listed Stocks, Apple has a lower stock price than Charter but is a much bigger company.
I hope it helped some of you to not be fooled by a lot of scammers that come around and try to convince you to buy this coin because it is “cheap” because in the end, the price of a single coin does not matter.
Source:
EOS Website