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Market capitalization is one of the most popular metrics in finance. It was first introduced in the stock market and has been adapted to the crypto world where it is used to value cryptocurrencies.
Crypto market cap has its supporters and its critics. Supporters view market cap as a simple, albeit incomplete way to rank cryptoasset projects. Critics insist that market cap is not a measure of value but a crude expression of the price investors are willing to pay. Both sides make valid points.
Crypto market cap is calculated by multiplying the circulating supply of a coin by its current price. For example, if a digital currency has 1,000 tokens in circulation, and each token trades at $100, the market capitalization of the project is $100,000.
As with stocks, cryptocurrencies are classified in terms of market cap. Large-cap cryptocurrencies have market caps in excess of $10 billion, mid-cap cryptocurrencies range between $1 billion and $10 billion, and small-cap cryptocurrencies are worth less than $1 billion. In the world of stocks, the higher the market cap, the safer the investment. In the world of cryptocurrencies, a high market cap is less meaningful.
If the market cap of a cryptoasset is high, it means that it trades at a high price, has a high circulating supply, or both. If the market cap is low, it signals that the price per coin is low, there is little circulation, or both. This is all that market cap can reveal about a cryptocurrency. Nothing more. It can’t express whether tokens are held by a network of small investors or a handful of whales, it doesn’t speak to liquidity, and it is silent on max supply.
Crypto market cap is a source of controversy. There are those who claim that market cap reflects the amount of fiat currency invested in a cryptoasset. This is wrong. Consider an influx of new investors to a project with low trading volume. Due to the market’s lack of depth, the sudden interest dramatically drives up prices. Let’s say that the token goes up 50%, from a million-dollar market cap to $1.5 million. Does that mean that the investors pumped in $500,000? Absolutely not. The new market cap merely reflects the price that the last investor was willing to pay.
Another example: take a new cryptocurrency with a circulating supply of 100,000. It goes live, and the first investor buys a token for $5. Once that trade is executed, the project will have a market capitalization of $500,000. Yet only \$5 changed hands.
All that said, when considered with other indicators, crypto market cap can be useful. It’s quite common to look at market cap alongside metrics like trading volume and liquidity. Trading volume refers to the number of coins being traded across the world’s cryptocurrency exchanges. Liquidity measures the degree to which an asset can be bought or sold without causing a major price change. In most cases, high volume and high liquidity mean a healthy market that is difficult to manipulate. Indeed, a classic way to measure the quality of a cryptocurrency is to check whether its trading volume is equal to or greater than its market cap.
Crypto market cap has major drawbacks, yet it remains the go-to indicator for many investors, analysts, and commentators. This is unfortunate. At best, market cap can serve as a jumping-off point for evaluating a cryptocurrency. But it is only truly helpful when used in tandem with other metrics like trading volume.
Although market cap is, at best, an incomplete indicator of cryptoasset quality (more on that here), in some cases, it can be a useful starting point for analyzing an investment opportunity.
Market cap reveals a bit about a coin’s characteristics. For example, high market cap could indicate that a cryptocurrency is resistant to volatility. Low market cap indicates the opposite, that major news events or whale activity can significantly impact price. However, crypto market cap can only take you so far. To get a strong read on volatility, you’d have to combine market cap with other metrics like market depth or transaction volume.
Traditionally, stocks are analyzed with metrics such as price-to-earnings (P/E) and earnings-per-share (EPS). Crypto projects don’t publish financial statements, but there is still a need for comparison. Over time, the simplicity of market cap has made it the most popular way to compare cryptoassets. For this reason alone, crypto market cap matters. It’s important because crypto investors, exchanges, aggregators, and project owners think it’s important.
Experienced investors will usually consider multiple indicators, but there are some who base their decisions exclusively on market cap. Crypto exchanges use market cap as a way to determine which coins to list – coins with higher caps are more likely to make it. Exchange data aggregators tend to rank projects by market cap. The higher an asset’s market cap, the more prominently it will be featured on the site. Project owners take market cap seriously enough to spend time and money manipulating the circulating supply or price of their tokens. This is just one reason why crypto market cap is considered a misleading or unreliable indicator.
To summarize, crypto market cap matters because it’s easy to understand and a decent starting point for analyzing a cryptoasset. It’s also important because so many players consider it to be important. As the crypto space matures, better tools will be developed that will provide market participants with in-depth, actionable information. When that happens, market cap will likely lose its place as the leading crypto indicator.
As of this writing, the global crypto market cap all-time high is just over $3 trillion ($3,149,435,050,780 USD). The market reached this level on November 8, 2021.
Crypto market cap is calculated the same way as stock market cap, by multiplying the circulating supply of an asset by its price in fiat currency (e.g. USD, EUR, JPY). The calculation gets trickier when an asset is traded against another asset. In a crypto pair – let’s say Ethereum/Bitcoin or ETH/BTC – to get the price of ETH, we would first denominate BTC in fiat.
In order to understand market cap, it’s important to consider its constituent parts – price and circulating supply. Price depends on who makes the calculation. The general price is calculated as a composite of spot prices used on crypto exchanges. For index funds, the calculation is adjusted to include variation in trading pair prices. The price that you see on online news aggregators (Google, for example) is usually the average price at which an asset trades on leading exchanges.
In the crypto space, the problem of inadequate pricing is well-known. Most pricing index issuers fail to detail how they price instruments or where they get their data. At Nomics, we strive to set this right. Our methodology takes the price at which an instrument last traded on each exchange, weighted by the general trading volume over the past 24 hours. More on our methodology here.
When it comes to supply, it is worth noting that the calculation depends entirely on the token and the mechanics of its protocol. Although Bitcoin has a finite supply (21 million), most tokens are designed with a dynamic supply that increases over time. When calculating the market cap of a particular cryptoasset, it is the circulating supply that should be taken into account. Circulating supply is the number of tokens that are currently available on the market. Circulating supply is a better metric than total supply because it excludes coins that are reserved or locked.
Bitcoin (BTC) is the world’s leading cryptocurrency by market cap. In terms of market cap, Bitcoin has reached heights of over $1 trillion. To find Bitcoin's market cap, locate the value in the "market cap" column associated with the Bitcoin record in the table above.
As with other cryptoassets, Bitcoin’s market cap is determined by multiplying its circulating supply by its current price. It is worth noting that, due to the finite supply of Bitcoin, at some point, circulating supply and total supply will be equal. At that time, Bitcoin’s market cap will have only one dynamic determinant, the price.
Bitcoin’s current circulating supply has already reached 85% of the maximum supply, which is fixed at 21 million.
Some investors view low market cap as synonymous with high profit potential. Similar to penny stocks (stocks priced below \$1), low-cap cryptocurrencies are often considered to be undervalued. That is why many market participants favor cryptocurrencies with low market caps. They believe these currencies have more room for price appreciation. Others view low market cap cryptocurrencies as ground-floor opportunities.
Whatever the reasoning, low market cap cryptocurrencies are popular investments. Here’s how to find low market cap cryptocurrencies on the Nomics platform:
Nomics lists cryptocurrencies with market caps as low as a few hundred dollars. However, you should avoid choosing an investment by market cap alone. Consider additional factors such as recent price changes, trading volume, circulating supply, and transparent volume, a feature unique to Nomics that shows the percentage of trading volume that occurs on reputable cryptocurrency exchanges. For more on transparent volume, see here.
Market capitalization is often used to indicate the value of a company or stock. It is calculated by multiplying the total number of shares outstanding by the price per share. Investors calculate the value of a cryptocurrency by multiplying its circulating supply by its current price. Though stock and crypto investors use the same indicator, the calculation differs in some respects.
To calculate the market cap of a company, multiply shares outstanding by the current price per share. Let’s take a minute to examine both components of the equation.
Shares outstanding reflects all stocks that are currently held by shareholders. It even includes restricted shares (held by corporate staff) and share blocks (held by institutional investors).
Price, on the other hand, is affected by internal factors such as profit, expected profit, and plans for growth. How investors perceive these factors influences supply and demand and determines the price of a stock.
To find the market cap of a cryptocurrency, multiply circulating supply by current price. Circulating supply is similar to shares outstanding but only includes tokens that are available in the market. It excludes coins that are reserved or locked.
The price of a cryptocurrency is usually calculated as an average of the spot price at which the instrument trades on leading exchanges. Cryptocurrency pricing in the context of index funds happens in a slightly more sophisticated way and is adjusted to include variation in trading pair prices.
Although market cap is used to value both companies and cryptocurrencies, there are differences in the way it is applied.
For instance, shares outstanding takes into account all issued shares, including those held by corporate officers and big investors. Circulating supply ignores reserved or locked coins. As a result, crypto market cap only includes assets that are available for trading. If crypto market cap followed the same logic as stock market cap, it would be based on total supply. A far more accurate calculation is achieved by using circulating supply. For more on the cons of using total supply, see the next question below.
Another difference is pricing mechanics. While most stocks have fixed issuance mechanisms, in the case of cryptocurrencies, many protocols are designed to expand continuously, thus inflating token supply over time.
In general, crypto market cap isn’t considered to be as accurate as stock market cap. One of the reasons is that, unlike the stock market, where a high market cap indicates a safe investment, in the world of cryptocurrencies, high market cap doesn’t necessarily mean that an investment is secure. Another reason is the fact that cryptocurrency comes with certain risks that don’t exist with stocks. To compensate, one must analyze market cap in a broader context.
The oldest “modern” securities market in the world is the Amsterdam Stock Exchange, which was founded in 1602 by the Dutch East India Company. The first cryptocurrency, Bitcoin, was launched in 2009. This goes to show how young the cryptocurrency market is compared to the stock market, which has had centuries to mature. We often make the mistake of copying stock market metrics and trying to shoehorn them into the world of cryptocurrencies. So is the case with market capitalization.
Market cap is applied to both stocks and cryptocurrencies, but there are differences in how the metric works in each case. In the world of stocks, market cap can reveal much about a company including corporate policies (for example, the issuance or repurchase of shares), management style, and operational scale. It is often used for its simplicity and relative effectiveness at assessing the quality of a stock.
When it comes to cryptocurrencies, however, market cap is not a useful basis for making an investment decision. In fact, many researchers describe crypto market cap as a deceiving indicator that is used only because it is simple.
Despite all that, market cap continues to be used as a leading indicator of cryptoasset quality – even by experienced investors. This is a mistake.
Stocks and tokens have very different characteristics. Stocks represent ownership of a company that creates economic and social value. Depending on the type of stock, ownership can provide a shareholder with the right to receive dividends, vote, and participate in procedures aimed at raising liquidity. Tokens represent participation in a network that may or may not generate value. Tokens do not guarantee claims on profits or participation in sales or ICOs. A token’s price is based not on real-world factors that influence supply and demand but on speculation about a project’s potential.
The truth is, while digital tokens are an exciting asset class, they are fundamentally different than stocks, and using the same indicator to analyze them can result in false or unrepresentative conclusions.
Another problem with crypto market cap is token inflation. With stocks, the total supply is fixed and can rarely be changed. The only way to change it is via a stock split. When it comes to tokens, however, an emission schedule can guarantee an instrument’s continual inflation. The increase in circulating supply that takes place over time leads to a higher market cap. But a higher market cap doesn’t necessarily mean that a project is doing well. It could just mean that there are more tokens in circulation. And vice-versa – a lower market cap doesn’t necessarily mean that a project is struggling. It may simply indicate that there are fewer tokens in circulation.
Crypto market cap was initially copied from the stock market. Although one of the factors, price, is present in both cases, there was a need to find a crypto metric that replicated the role of shares outstanding. The option that most resembled shares outstanding was total supply – all coins or tokens that currently exist and are either in circulation or locked. But this opened a loophole. Token owners could artificially inflate their market cap by pre-mining coins and locking them away. In response, total supply was swapped for circulating supply – all coins or tokens that are available for trading, excluding those that are reserved or locked. Circulating supply was intended to measure liquid supply. This raised new complications, namely how to define which part of supply could be considered liquid. Take lost coins, for example. Circulating supply is incapable of judging which coins are lost forever. In the case of Bitcoin (BTC), it is estimated that up to 4 million coins have been lost. If these coins were to be removed from circulating supply, the currency’s market cap would nosedive. Many critics of circulating supply suggest that the metric tends to overestimate the real supply on the market by including tokens that aren’t actually available.
Perhaps the most notable pitfall of the crypto market cap calculation is found in the mechanics of the cryptocurrency market. As the crypto market tends to be more volatile than the stock market, any significant buy or sell order can lead to a major price movement that will affect a project’s market cap. This is why we often use a metric known as redemption impact score which measures the likelihood of a large order affecting the price of a cryptoasset. A high redemption impact score indicates a less stable price while a low score indicates that an asset can maintain a relatively stable price through dynamic market activity. In reality, the majority of cryptocurrencies have high redemption impact scores.
Another drawback of crypto market cap is that it is prone to manipulation. Mustafa Al-Bassam from University College London described a case where 0.002 of the coin Firstblood (1ST) was bought for $140 worth of Ethereum (ETH). This led to 1ST’s price being quoted at $69,000 per coin and a market cap of $163 billion. For a moment, 1ST was the world’s second-biggest cryptocurrency.
This demonstrates how easily market cap can be manipulated when a coin has meager trading volume. The same occurs when a whale, or large investor holding a significant percentage of a cryptocurrency, decides to dump it all at once. The cryptocurrency’s price plummets, followed by its market cap.
Another way to illustrate how inefficient and even deceiving market cap can be is to imagine that you are launching a cryptocurrency project. Let’s say that the project has a total token supply of one billion. If you sell a single coin for $1, your project is now worth $1 billion.
Yet another downside to crypto market cap is its inability to measure the value of a project. Crypto market cap merely reveals the price that investors are willing to pay. It does not express value. Consider overnight price gains. If Tron (TRX) suddenly jumps 20%, does that mean the network has added new features or created real-world value in any way? Most of the time, the answer is no. Generally, it just means that people are willing to pay 20% more for the asset.
One last thing to bear in mind is that market cap is a reflection of the last price at which a cryptoasset traded. All previous trades were executed at different prices, and there is no guarantee that the last price will be the price at which the next trade executes. In fact, given the volatility of cryptocurrencies, price is unlikely to remain the same for very long.
Several alternatives have proven to be better indicators of cryptoasset quality.
The first is market cap’s upgraded version - fully diluted market cap (FDMC), which optimizes circulating supply by normalizing disparities in emission schedules. FDMC bases market cap calculations on a point in the future when an asset’s supply is comparable to the current supply. This normalizes emission schedules between assets to provide a more even comparison. However, FDMC has its flaws. The main one is its inability to deal with protocols designed to inflate supply in perpetuity. This means that no matter how distant the point in time, results may still be skewed. Another pitfall of FDMC is its assumption that prices will remain constant regardless of changes in supply.
Realized cap is another market cap alternative. It improves on circulating supply by excluding coins that have been lost or never activated. The indicator relies on unspent transaction output (UTXO), which is used by nodes to confirm the validity of transactions: if a transaction isn’t present in the database, it isn’t considered valid. UTXO helps avoid the problem of double-spending, or the spending of nonexistent coins. Researchers use UTXO to estimate the number of coins lost over time – in the case of Bitcoin (BTC) – and coins that were never claimed or activated – in the case of Bitcoin Cash (BCH). The only downside to realized cap is that it struggles to differentiate coins that are lost entirely from coins that are HODLed for the long haul.
This leads us to one of the most popular alternatives to market cap, market-value-to-realized-value (MVRV), which seeks to determine how over- or undervalued a particular asset is by analyzing where it is in its market cycle. MVRV is calculated by dividing market cap by realized cap. The concept is that market cap reveals market hype while realized cap indicates whether long-term, “serious” investors have entered the market. The addition of market cycle analysis enhances market cap and makes it more dynamic.
You can learn more about market cap alternatives in the following essay. However, it is worth noting that crypto market cap, or any of its alternatives, represent a single way to evaluate the quality of a cryptoasset. There are other indicators that provide statistical data about the performance of cryptoassets and characteristics that might be detrimental to their long-term health.
To fully understand them, we must first look at the stock market. To find the real value of a stock, analysts calculate the net present value of a company’s projected revenues or dividends. Stock market analysts rely heavily on relative valuation models like price-to-earnings (P/E), which allows them to perform a fair comparison of two instruments. Cryptocurrency analysts have attempted to adapt this framework into metrics such as network-value-to-Metcalfe (NVM) and network-value-to-transactions (NVT).
Before delving into NVM, let’s define Metcalfe’s Law. The law is usually applied to online networks, but it is also considered useful in the world of cryptocurrencies. According to the law, the more people who use a network, the more utility each person derives. This also leads to a higher network value. Cryptocurrency analysts use NVM to determine how over- or undervalued an asset may be.
The next ratio, NVT, focuses on transaction volume. The ratio is similar to P/E in the stock market, where earnings act as a proxy for the value that each shareholder receives. In place of earnings, NVT substitutes network transactions and divides market cap by daily transaction volume. High NVT indicates that an asset’s market value surpasses its actual value. Low NVT indicates an undervalued network. NVT isn’t a flawless indicator. It’s not clear on which transactions should be considered, and the fact that there are on- and off-chain transactions increases the difficulty of estimating total transaction volume.
Another way to determine the liquidity of an asset is through buy support, which is the sum of buy orders at 10% distance from the highest bid price. Buy support helps explain how liquid a particular asset is and how many buy orders should be expected.
In addition to factors like price, circulating supply, liquidity, and trading volume, a network’s value can also be considered in terms of security, number of active contributors, and popularity on social media and Telegram.
Hopefully, this demonstrates that crypto market cap is an incomplete metric and that investors who rely on it exclusively do so at their peril. Although market cap is the most popular indicator of cryptoasset value, it is inefficient at estimating asset quality and struggles to provide actionable data. For these reasons, crypto market cap should always be backed by additional market metrics.
There are two ways to raise the market cap of a crypto project. Think of them as the “artificial” way and the “natural” way. Or, in other words – the “bad” way and the “good” way. The “bad” way exists because market cap is an inefficient indicator and prone to manipulation. We’re going to focus on positive (or “natural”) ways to raise a project’s market cap.
We have already examined the drawbacks of market cap. To summarize, it presents investors with a price rather than a value. While a higher price doesn’t necessarily indicate a higher value, a higher real-world value can increase the price of a token. This means that if you want to raise the price of a cryptocurrency, focus on increasing the value of the network. The first step is to attract as many active users as possible. The bigger the network, the more stable and attractive it is. Vitalik Buterin, the founder of Ethereum (ETH), listed several characteristics that increase the value of a network:
But how does a network reach a point where it attracts new users on a regular basis? Before a network attracts users continuously and naturally, it must meet certain prerequisites. Let’s take a look.
For a coin to be valuable, it must have a strong use case. A protocol must solve a real-world problem. It could tackle a market pain point or provide value to investors in the form of utility rights or as a medium of exchange on a platform. When a coin has a proven use case, there is an incentive for investors to buy, hold, or spend it. Consider Ethereum. For someone to develop applications on the network, he or she needs gas, which comes from the platform’s currency, ETH. The more developers there are, the bigger the demand for ETH, and the higher its price goes. The result: a higher network value and a higher market cap.
The aim of each cryptocurrency is mass adoption. That said, having real-world applications remains a difficult task for most crypto projects. It is a long and complicated journey, but it is the right path to follow._ _A coin that isn’t designed with a use case in mind is merely a tool for speculators, without any fundamental value.
In some cases, scarcity can result in increased value. The more rare an asset, the more expensive it becomes. This is certainly the case with Bitcoin (BTC). Its fixed supply means that its protocol cannot continuously issue new tokens, and many experts believe that the closer we get to the moment when all coins are mined, the higher the price will rise. This principle is valid mostly for coins with real-world use cases.
A large number of coins are designed with continuously expanding protocols. Although this leads to a higher market cap, it doesn’t really add value.
Meanwhile, other projects have an integrated “burning” mechanism to destroy a portion of their supply and increase the price of each coin. Scarcity is a useful tool for project owners who wish to control the market cap of their tokens, but it should be used appropriately.
Another way to boost market cap is to get listed on as many reputable crypto exchanges as possible. However, getting listed on exchanges cannot be the final goal. Many have policies to delist tokens that aren’t regularly traded. Therefore, it’s vital for projects to wait until they’ve gained some popularity and built an initial user base.
Projects that are listed on leading exchanges are usually considered more reputable and find it easier to attract investors. This then leads to higher liquidity, which, combined with a higher market cap, can turn a cryptoasset into a preferred investment opportunity.
For more information on how to get listed on an exchange and remain successful afterward, check our Cryptocurrency Exchanges FAQ.
Projects that hit roadmap milestones on time have a higher perceived value. A project’s openness to innovation and partnerships with proven third-party service providers can also raise credibility in the eyes of investors. Backing from well-known companies means more transparency and a more natural path for projects to establish themselves on the market.
Projects that have a stable or increasing base of followers are more attractive to investors: the higher the number of active contributors, the more progressive a network will become. Think of it like the snowball effect – the more people there are on a network, the more will be interested in joining.
One way to gauge a network’s number of users is its node count. Node count reveals how many active wallets exist on a network. The higher the number, the stronger the network is. This is why many investors use a market cap/node count ratio to determine whether a cryptocurrency is under- or overbought.
However, a high node count or a large community is not enough. Projects must also listen to their users, who can spot points of friction or recommend features that work well on other networks. The truth is, the market – or user behavior – can tell a project everything it needs to know.
There is nothing more harmful to a cryptocurrency than a bad reputation. Many projects doom themselves by dwelling in the shadows, where it’s impossible to earn user or investor trust. There have also been several cases of projects using whitepapers copied from other projects without changing anything but the organization and token name. Although some investors will fall for a bogus whitepaper, it is usually a recipe for disaster.
Investors also tend to avoid tokens that have a history of security breaches or protocol issues. Though this isn’t to say that a project can’t survive a hack. In fact, if a project shows that it overcame a security issue and bounced back stronger, it will reflect positively on the long-term vision of the project and the quality of the team behind it.
In summary, to raise the value and market cap of a cryptoasset, one should disclose everything about the project (owners’ backgrounds, roadmap, future plans, risks, etc.) and be as transparent as possible.
In recent years, the marketing of cryptoasset projects has become increasingly important. Competition forces projects to continuously improve their marketing communications and adopt different channels to discover new audience members.
Marketing doesn’t stop once a project goes live or gets listed on an exchange. If a project has a unique use case, there’s a chance that word will spread organically. However, in most cases, projects should spend at least some money on marketing and PR.
To determine the maximum cryptocurrency market cap, we need max values for price and circulating supply.
Generally speaking, the price of a cryptocurrency is determined by supply and demand. Unfortunately, demand is almost impossible to predict. For example, in the case of Bitcoin (BTC), we can’t be sure at what price it will trade when it reaches its maximum supply of 21 million. It could be $50,000 or $500,000. Depending on outside factors, such as a ban on cryptocurrencies, it may even drop below its current price.
Estimating the maximum circulating supply of all cryptocurrencies can also be difficult. While some protocols declare a fixed supply, others are designed to continuously issue new tokens. Due to these unpredictable dynamics and the fact that new cryptocurrencies are developed daily, it becomes quite hard to predict how much cryptocurrency will be in circulation at any point in the future.
That said, to determine the maximum cryptocurrency market cap, one would have to find the maximum circulating supply of all available cryptocurrencies then multiply that by the prices of those currencies when their respective circulating supplies are at their maximums.
Let’s see what some of the field’s leading figures say. Changpeng Zhao (CZ), the founder of Binance, has said that he sees cryptocurrencies surpassing a market cap of $200 trillion. Vitalik Buterin, co-founder of Ethereum (ETH), believes there's room for growth, but that it’s unlikely the cryptocurrency market reaches such levels. Who’s right?
Although we can’t know for sure, we can make some assumptions based on present information and expert projections. If the crypto market cap reaches $200 trillion, it will mean that cryptocurrencies represent the majority of the world’s wealth. For this to occur, the world financial system would have to undergo a paradigmatic shift. Banks and high-net-worth individuals would have to drop current investments and stores of value in favor of cryptocurrencies. For now, this seems unlikely.
A survey by the World Economic Forum concluded that in 2027, 10% of the world’s GDP will be held in digital assets. According to statistics from the World Bank, global GDP was approximately $85.8 trillion in 2018. Long-term GDP forecasts project a 2027 GDP of $126 trillion. If the above estimates are correct, in 2027, $12.6 trillion of the world’s GDP will be stored in cryptoassets. These figures are far from CZ’s $200 trillion.
To get a broader perspective, let’s take a look at the world’s money supply and the way it is diversified. In 2017, the planet’s narrow money (coins, banknotes, and checking accounts) was worth about $36.8 trillion. More on that here. According to data from the World Bank, the 2018 market capitalization for all listed domestic companies was $68.6 trillion. This means that explosive growth will be required for the market cap of cryptocurrencies to rival the market cap of checking accounts or stocks.
In theory, the only check on the cryptocurrency market cap is the world’s money supply. However, at least in the near-term, it’s unlikely the crypto market cap exceeds even a few trillion dollars.
Market capitalization is a popular indicator, but it doesn’t tell the whole story. Ranking cryptocurrencies solely by market cap ignores crucial statistical information and fails to inform investors about popularity, liquidity, and other important factors. Investors who base their decisions exclusively on market cap often end up disappointed.
Investors would be better off analyzing the time needed for a cryptoasset to trade its market cap equivalent. The rule of thumb is that if a cryptocurrency generates trading volume that is equal to or higher than its market cap, it is healthy and stable. Investors can get in and out of positions quickly and lock in trades at preferred prices.
Monthly trading volume for some of the more popular cryptocurrencies is similar to their respective market caps. This indicates stability and balanced interest from market participants.
But how might a coin with low trading volume get a high market cap? It often occurs when a cryptocurrency’s supply is high, but there aren’t many coins in circulation. This could be due to long-term HODLers who aren’t actively buying and selling.
A disadvantage of investing in low-volume cryptoassets is their inability to support big trades. A single trade could move a low-volume cryptocurrency significantly. This makes such assets unattractive to large investors who would struggle to execute major trades without experiencing slippage.
In a previous answer, we covered the drawbacks of relying on market cap when making cryptocurrency investment decisions. We demonstrated just how easy it is to manipulate market cap.
In recent years, the cryptocurrency space has made strides towards legitimacy, but systemic abuse remains. One of the most common ways the ecosystem is manipulated is via artificial inflation of project market caps.
Here are five practices that token issuers adopt to manipulate their market caps:
Crypto market cap is calculated by multiplying the price of a coin by its circulating supply. This means that by influencing circulating supply, a token owner can affect the market capitalization of his or her project. The easiest way to do that is by building frequent token emissions into the protocol.
Other project owners adopt the strategy of releasing a massive initial issue. If a new cryptocurrency can issue a million tokens and sell the first one for $1, the market cap of the project becomes $1 million. So was the case with U.CASH (UCASH), Dentacoin (DCN), and several other projects.
Another way to manipulate supply is by airdropping coins into user wallets.
This is the most common means of manipulating a cryptocurrency’s market cap. Over the past few years, several studies have concluded that some token owners send fake volume to exchanges to make their projects appear more attractive to investors. Higher volume indicates greater interest in a project and more liquidity, which means that investors can enter and exit positions at their preferred prices.
A token with higher reported volume is also more likely to be listed towards the top of an exchange’s rankings, where it will be more visible to investors. This can spark FOMO, or “fear of missing out.”
Another way to manipulate cryptoasset prices is via so-called “pump-and-dump” schemes. These schemes aren’t always engineered by token owners. Sometimes the perpetrator is an investor interested in artificially boosting the price of a coin.
In a pump-and-dump scheme, a market participant sends a high volume of buy orders to create the impression that there is interest in a project. This generates real interest, and the price jumps. At that point, the initial buyers sell – or dump. Unlike traditional pump-and-dump schemes, in a cryptoasset pump-and-dump, the price may fall, but it doesn’t necessarily crash. After all, there are some natural buyers. Just to be sure that the price doesn’t crash, fraudsters may dump in waves. Rather than sell all at once, they sell steadily. This results in a “bottom-fishing” situation where others wonder whether the price drop is merely temporary. They’re motivated to buy and end up supporting the price. All of this results in an artificial price increase that simultaneously drives up market cap.
This type of price manipulation is usually applied to low market cap and low-volume cryptoassets, although, depending on the scale, it can work in more developed markets as well.
To learn more about pump-and-dump schemes and their application to the cryptocurrency world, see this comprehensive study.
Many projects pay review sites for positive reviews and recommendations. An unsuspecting audience can be easily manipulated.
The dissemination of false information often happens during “pumping” phases when the community behind a project endeavors to attract as many investors as possible. To trick others into buying their coin, a community might try fake news stories, fake partnerships, or even forged endorsements from prominent public figures.
For example, a group created a fake Twitter account that resembled one belonging to the late John McAfee. The account’s name was made to look like the real one, @officialmcafee, only it included an extra “l”. The fake account posted positive tweets about an altcoin, Genesis Vision (GVT), and supported those statements in a chat room. The tweet was shared thousands of times, and the price of the coin jumped 50%.
Some project owners use bots and fake accounts to generate buzz on social media. Buzz attracts investors. More investors mean a higher price and a higher market cap.
Analysts have developed metrics to evaluate whether a project is being unreasonably hyped on social media. One of the most popular indicators is the hype-to-activity ratio. It measures the number of tweets about a cryptoasset per million dollars of trading volume. The ratio uses 30-day averages for both tweets and trading volume. In most cases, overhyped projects are indeed using bots or fake profiles.
Hype can also come from the organized efforts of a project’s community. Investors may join forces on Telegram to hype a project and increase its price. Studies have shown that Telegram and Discord groups are capable of boosting prices as much as 950%. That said, most investors are able to see these hype-driven pumps for what they are.
Fake trading volume is one of cryptocurrency’s most well-known problems. Numerous reports have come out (Bitwise, Crypto Integrity, The Block, Sylvain Ribes, and others) which confirm that a bubble was created by token owners and exacerbated by exchanges and exchange data aggregators. Studies conclude that more than 80% of trading volume is fake.
The truth is that artificially inflating trading volume is profitable and easy. From a project owner’s point of view, inflating volume makes their project more appealing to investors. High trading volume is a sign of liquidity, which allows traders to enter and exit positions quickly. It’s also indicative of stability, or low volatility. High volume signals that a market is healthy and worth investing in.
For the same reasons, higher trading volume enables an exchange to charge higher listing fees. It also generates traffic from aggregators and helps exchanges attract IEOs.
Trading volume doesn’t grow on trees, but it is relatively easy for project owners to manipulate. From there, the contagion spreads to exchanges and market data aggregators.
The most common method, ticker stuffing, is detailed by Nomics CEO Clay Collins in the short video, “How Cryptocurrency Exchanges Spam CoinMarketCap (With Fake Volume).” An exchange simply changes the volume number. It’s that easy. A token’s trading volume can grow from millions to billions in the second it takes to type three zeros. There’s no need to modify trades or candles. All one has to do is adjust the number.
There are other ways as well. Coindesk has found that there are companies offering to fake volume for a fee. These outfits program bots to buy and sell a token continuously until trading volume is sufficiently inflated to earn a ranking on CoinMarketCap and other exchange aggregator sites. This practice is also known as “wash trading”. Most of the time, wash trading is engaged in by exchanges, but it can be done by token owners as well. Some exchanges encourage their customers to wash trade for them. These exchanges compensate wash traders with tokens or discounted fees. For a project owner, an exchange might also offer to cut the listing fee. In many cases, when an exchange and a project owner conspire to artificially boost trading volume, it’s a win-win for both sides – at least in the short-term.
Most exchange aggregators post data directly from token projects or crypto exchanges. Oftentimes, this data contains fake volume. Most of the time, if you use an aggregator, you’ll have to perform independent research to verify the reported information.
At Nomics, we take a different approach. We provide visitors and API users with Transparent Volume, the portion of trading volume that comes from exchanges that have received an A+, A, or A- Transparency Rating. These highly-rated exchanges are considered to be transparent because they have provided Nomics with high-granularity trade data, including full histories for each trading pair. In other words, with transparent volume, you get a much more realistic representation that excludes wash trading and other forms of toxic volume. For each cryptoasset listed on our homepage, Transparent Volume is located between Volume and Circulating Supply.
For most assets, Transparent Volume ranges between 20% and 70%. However, there are some assets with values as low as 5%. This goes to show the level of manipulation that exists in the cryptocurrency market.
To find the total cryptocurrency market cap, visit Nomics.com, and look for the Global Market Cap card. It's at the top of the page, right under the title Top Cryptocurrencies by Market Cap.
This is a common question and an understandable one given that there are thousands of actively traded cryptocurrencies. The variety of investment opportunities can result in analysis paralysis.
You should choose projects with history, a clear goal, transparent volume, an active community, and ongoing development. These characteristics indicate a healthy project with potential.
It’s also important to consider your risk tolerance. You could choose a project that is already listed and actively traded, such as Bitcoin (BTC) or Ethereum (ETH), or you could go with a high-risk, high-reward ICO.
Let’s start with listed and actively traded cryptocurrencies. These currencies are often regarded as more secure than new projects. They have track records and enough trading volume to be considered liquid. If you choose to invest in a leading coin, follow the news for regulatory developments, policies that may ease or prevent mainstream adoption, and industry shifts. If you have the skills, you can also include technical analysis. That way, you’ll have a well-rounded strategy that minimizes risk. Whether your goal is to HODL for years or to speculate on short-term price fluctuations, established cryptoassets can be an excellent choice.
Then there are investors who dream of discovering the next Bitcoin or Ethereum. These folks tend to look at pre-launch projects and ICOs with high growth potential. When considering early-stage opportunities, it’s important to beware projects that promise exorbitant returns. Many projects that make big promises are not really designed to succeed in the real world. They’re solely focused on separating novice investors from their money.
Whatever your risk tolerance, before making an investment decision, it is essential to determine which type of cryptoasset you’re considering. There are five main categories:
Also known as app tokens, utility tokens have an application and value on their issuing platforms. Investors who purchase utility tokens believe in the project with which they’re associated and want to buy in before the price goes up. Bear in mind that the total supply of utility tokens is usually fixed.
Sometimes referred to as “digital shares”, security or equity tokens are tokenized slices of securities in which holders have ownership rights. Security tokens can also provide holders with the right to receive dividends. For more on security tokens, check out our three-part audio documentary, Tokenize the World.
Asset tokens are digital representations of physical assets like gold and silver. They’re popular because they provide investors with an easy way to buy precious metals and other commodities. The price of an asset token is tied to the price of an underlying physical asset.
Currencies are the most common cryptoasset type. As their name suggests, they serve as a form of payment. Bitcoin (BTC) is the most prominent example.
Reward tokens have no value on the open market. They’re simply used to gamify platform engagement by rewarding use or loyalty. Most reward tokens can only be spent on their issuing platform.
We’ve covered the types of tokens a project can issue. Now let’s cover some tips that will make you a better crypto investor. To increase your odds of choosing sound cryptoasset projects, consider each opportunity in terms of the following characteristics:
In most cases, ICOs are ideas that need money to be realized. An ICO is rarely a functioning product. If you decide to invest in an early-stage project, understand that you’re supporting a concept, not something that has been proven. This is not to say that investing in an ICO is foolhardy. In just five days, the EOS (EOS) ICO raised over \$180 million without a working product. From there, the price of the token skyrocketed more than 450%. What this means is that you should judge an ICO on its fundamentals rather than its track record in the real world. Think about the philosophy on which the project is built as well as its stated goals. Bitcoin was launched as an alternative to traditional money. Ethereum was designed to be a world computer for decentralized applications. The most important factor when selecting a cryptoasset project is the philosophy and stated goals of its founder(s) or team.
The goal should be ambitious but realistic. The cryptocurrency space is filled with projects that promise to transform the world for the better, but most attempts to reorganize the global financial system or abolish poverty or hunger will fail.
It is vital to distinguish hype from an idea with a real-world use case. Projects that are ambitious in terms of the technology they’re developing or which hope to refine an existing concept have the best chances of disrupting the status quo and meeting with success. That said, it’s worth keeping in mind that the likelihood of finding a unicorn in the crowded cryptocurrency space is not as high as it once was.
Look for projects that seek to add functionality, accelerate processes, or otherwise address a specific pain point. Cryptoasset projects with clearly defined goals are the most likely to generate long-term value.
It’s also important to consider the technology that powers a project. Launching a token requires a blockchain. Many offerings launch on Ethereum (ETH) or Binance Smart Chain (BNB). Other projects like Cardano (ADA) create a new blockchain from scratch. Starting from square one may yield terrific long-term results, but the process is slow, costly, and difficult to execute.
Unfortunately, there are projects in the Cryptosphere that are designed to scam would-be investors out of their money. Those who don’t do their own research risk becoming victims.
If you shy away from established coins like Bitcoin and Ethereum and favor projects that fly under the radar, always be sure to read the whitepaper. Serious projects write detailed whitepapers. Tokens with vague whitepapers or whitepapers that have been copied and pasted from other projects should be avoided. A good whitepaper answers all of your questions. It covers the project goal, the founder’s background, the development team, and the roadmap.
A good whitepaper also covers the legal framework that exists between the development team and investors. Additionally, it should answer questions related to token distribution such as when and how holders receive tokens and the amount of funding required for each phase of the distribution process.
Above all, a project’s whitepaper should explain why it needs a token. If that question goes unanswered, stay away. There must be a reason for issuing a token. If the reason isn’t clear, then the project may lack a real-world use case.
It’s also important to know how raised funds will be stored. If funds are not secured by smart contract or an escrow account, then your money will be at risk.
Beyond that, it’s wise to familiarize yourself with the company behind the coin. Does the team include experienced software developers? Does the CEO have a track record? Who are the project’s advisors? If the advisory team seems too good to be true, it may be. Shady projects have falsely listed A-list advisors. If you see that a prominent figure has signed on to advise, research whether that person is really associated with the project.
Any information regarding the team and advisors should be front and center in a whitepaper. If it’s not, regard it as a red flag.
If you are considering investing in an established coin, check whether it has stayed true to its whitepaper and roadmap. If it hasn’t, you might want to steer clear.
For established, actively traded cryptocurrencies, it’s important to consider trading history. Even if you intend to HODL, it’s best to choose a cryptocurrency that is actively traded and liquid. When investors know they can enter and exit positions without slippage, they’re more likely to invest. This bodes well for price appreciation. To avoid fake trading volume, use metrics like Transparent Volume.
It’s also important to analyze price movement. Cryptoassets that constantly experience wild price fluctuations may be targets of pump-and-dump schemes or other manipulative trading practices.
Look for cryptoasset projects with supportive, active communities. Most projects have public Telegram or Slack channels where you can communicate with community or team members. There’s usually information on Reddit and Twitter as well.
When interacting with members of a crypto community, be sure to take everything with a grain of salt. Opinions may be biased and few community members will have the technical expertise to properly judge or communicate a project’s pros and cons.
Keep in mind that some projects, even those with large communities, rely on paid PR to boost investor interest. Take hype for what it is, and always do your own research. It’s also worth noting that projects with clear goals and real-world use cases tend to market themselves the least. They give interviews, periodically release announcements, and maintain a social media presence, but they don’t pay people to hype.
Pay attention to the competition. You may have found a project that promises to create real-world value for thousands or millions of users, but what if there’s another team with the same goal in mind? In a crowded market, the slightest edge in time to market or user experience can make a huge difference.
When evaluating an ICO, consider where a project is in its development. Some tokens launch with little more than a whitepaper and a prayer. Others have beta versions on the market and are actively collecting user feedback. In rare cases, there is a working product. Though it can be profitable to invest in very early-stage ICOs, it’s safest to choose a project that either has a working product or is close to releasing one. A working product means that development is at an advanced stage, which signals that the ideas behind the project have been tested, if not in the wild then under circumstances that closely mimic the real world.
If there is a competitor project, consider where they are in their development. If they’re closer to a working product, they could seize a significant portion of the market while claiming first-mover advantage.
Another thing to look for is whether a project is backed by venture capital. If VCs support a project, it signals that it has a sound business philosophy, good leadership, and a real-world application. Venture capital can also bring credibility to a project, which attracts other investors and drives up the price. Don’t forget to check whether top VCs back the competition. If they do, it may indicate that a competitor is less risky, possibly because it has a stronger business plan or a more experienced CEO or dev team.
When evaluating a cryptoasset, it’s vital to understand what type of project it is. We listed five categories: utility tokens, security tokens, asset tokens, currencies, and reward tokens. We then discussed the characteristics of good cryptoasset projects: a sound business philosophy, a detailed whitepaper, liquidity (if it’s an established, actively traded coin), an active community, and a competitive edge.
In the end, if a cryptoasset project wants your money, it’s on them to make the case. A project that’s worth your time and money will be transparent about their goals and operations.
Nomics - as in economics. The word comes from Ancient Greek: "nomics”, or νόμος (nómos, “law”). It has long been used in combination with other words to form terms that describe the laws or rules of a discipline (e.g. Reaganomics, ergonomics, genomics).
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