Don’t be fooled by all the zeros
Just because a coin is cheap to purchase, does not mean that it is a good investment. Let’s take CSHIBA for example. This cute new experiential meme token has a Total Supply of 100,000,000,000,000,000 but a market cap of only $776,257. The price of the 1 CSHIBA coin is only $0.0000000000182261. So you could say “this coin is cheap”? Well, let’s take a closer look.
The price when the coin was launched was around $0.00000000024415. Then the price quickly rose in a matter of hours 200$ to $0.00000000074257. The token’s value then dropped down to under $0.00000000001626. This shows the volatility of these new coins, especially those with a very large total supply.
Market Cap = Current Price x Circulating Supply.
Coin Market Cap is probably the most misunderstood and overlooked factor by noobs when jumping in to buy a cryptocurrency. Luckily it is relatively easy to learn about, thanks to the the priceless educational documentation on the Binance Academy website.
“Within the blockchain industry, the term market capitalization (or market cap) refers to a metric that measures the relative size of a cryptocurrency. It is calculated by multiplying the current market price of a particular coin or token with the total number of coins in circulation.“
academy.binance.com
Two important things to understand:
1. A high-volume and liquid market is harder for whales to manipulate, making the asset less volatile as it would take a large amount of orders to affect the price.
2. A low-volume market could be easily affected with only a relatively small amount of money, causing a significant impact on both the price and market cap.
What is circulating supply?
The term circulating supply refers to the number of cryptocurrency coins or tokens that are publicly available and circulating in the market. Circulating supply of a cryptocurrency can increase or decrease over time, as tokens are mined or burned.
The circulating supply of a cryptocurrency can be used for calculating its market capitalization, which is generated by multiplying the current market price with the number of coins in circulation. So if a certain cryptocurrency has a circulating supply of 100,000,000 coins, which are being traded at $5.00 each, the market cap would be equal to $5,000,000,000.
Bitcoin is the top large-cap coin with a market cap of over $940 trillion and a 24hr trading volume of over $90 trillion. Generally mid-cap cryptocurrencies have market caps between $1 billion and $10 billion. Any cryptocurrency with a market cap under $1 billion is considered low-cap. Generally these smaller coins are considered to have more untapped potential upside but also are much higher risk. Small-cap cryptocurrencies have a market cap of less than $1 billion and are most susceptible to dramatic swings based on market sentiment.
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