Market Cap

Why Market Cap Matters!

Market cap matters!

When you’re deciding on a cryptocurrency to buy, don’t overlook this important attribute.

Sometimes, the euphoria of a market rally can get the best of us. We see a price rise and get excited, jumping on a “rocket to the moon!”

“That one cent coin you bought, it’s going to be worth $100!” says the guy on Youtube.

It’s true that a few penny-value currencies have eventually, over the course of time, risen to one hundred, or a lot more, dollars. Yes, if you look back far enough in the histories of Bitcoin, Litecoin, Ethereum, and so forth, there was a time where they were trading for very little money.

More important than the price of an individual coin, however, is its market capitalisation, or market cap. This is the total value of all coins in a given currency. Consider this analogy: If I buy a pizza for ten dollars, I can think of ten dollars as the “market cap” – that is, the value of the whole pizza. If I then slice that pizza into ten slices, each slice is worth one dollar. The whole pizza is still, of course, worth ten dollars. I could slice the pizza into tiny slices – say 100 slices (kinda ridiculous, but you get the idea), and each slice would only be worth 10 cents.

Some people might then be fooled into perceiving the ten cent slices as “cheap” compared to a pizza that is only split into ten pieces. “Why, that slice costs ten times as much!” They might exclaim. But they are buying much smaller slices of the pie.

This happens in cryptocurrency all the time, and it’s why it’s worth considering smaller market cap coins – coins like Vertcoin – as a strong investment. Coins from the earlier years of cryptocurrency development had relatively fewer coins in circulation. The maximum circulation of Bitcoin is around 21 million. Currently, there are around 17 million coins in circulation since they haven’t all been mined yet (and won’t be for many years). Right now, the market cap of Bitcoin is about $175 billion. So, if you divide the market cap (pizza) by the number of coins (slices), you get the value of each coin.

Other coins have surged (and tanked) in recent months on the excitement of their novelty. What buyers have often overlooked is their market cap, getting instead enticed by the “cheap” price of the coin, and buying hundreds or thousands of the coins in the hopes of striking it rich. Some coins might cost less than a cent, but could have a circulation in the billions. That’s a pretty tiny slice of pizza. It appears to be a bargain, but what you’re really getting is an extremely small share of the market cap.

Litecoin and Vertcoin were forks of Bitcoin that were designed to solve problems faced in development over the years. Vertcoin’s primary aim is to be truly decentralised through ASIC-resistance (you can read more about ASIC-resistance and Vertcoin’s unique attributes here). The market cap of Vertcoin is quite small compared to Bitcoin, at about $160 million. But its circulating supply is also quite small compared to many multi-billion coin currencies, at around 40 million right now, with a maximum circulating supply of 80 million, some time, far off in the future. It is easy to see then, why Vertcoin has more value per coin than many newer currencies.

Of course, Vertcoin also has a great deal more potential value as it develops solutions to cryptocurrency problems, starting, of course, with decentralisation, but adding atomic swaps, lightning network, stealth addresses and much more. This coin is being developed by a dedicated community of developers and has a lot of growth in its future.

When considering investment in currencies, think proportionally, like buying slices of a pizza. Look at the market cap and the circulating supply of a currency. This will give you a better understanding of the potential of a currency and where it should be in the market. This is why some smaller cap coins, like Vertcoin, might be a better investment in the long run.

Darren Kleine

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