Market Price VS Market Cap
Here’s why I think Price is BS, and Market cap is not.
While market cap and market value are both measures of an asset the two are vastly different in their calculation and precision. Market cap is calculated by multiplying the number of coins available by the current price.
Let’s use $BTC as an example; The total coins available (circulating supply) is 19,158,637 The current price is $18,733. Circulating supply * current price = $358,915,721,931 Market Cap
Market cap can be applied to anything. Let’s say you have a basket with 10 apples and you are selling each one of them at 1$. Each apple is valued at 1$, but the market cap of that basket is $10.
Yeah, cool information. But what can we do with all that?
Well, have you ever seen the dumb tweets and youtube videos saying;
$XRP to $100
$ADA to $50 next week
$MATIC to $100
Dumb as fuck
I am not hating on any of these coins, I would love to see $Matic at $100. I would get mad rich! But let me show how dumb this is;
#Polygon / $Matic has a circulating supply of 8.73Billion, with a current price of 0.74 per coin. That’s a market cap of $6,529,382,287 or 6.5Billion
That means if that “$100 Matic” call is true. We would have a market cap of $873,000,000,000! That’s higher than $BTC and $ETH combined!
That is extremely unrealistic, at least for the next years to come.
What’s a better approach and more realistic call?
$5 is totally achievable. Because $5 per coin multiplied by the circulating supply of 8.7B equals 43.5Billion Market Cap. That would put Matic on the number 6 spot on the market cap list, right under Binace Smart Chain.
Next time you see a tweet or a video calling a coin to a certain price go and do that calculation to see if it is possible or it lacks some logic.
What else can we do with market cap?
Another great to leverage market cap is to compare one project to another until you find one that is undervalued.
Let’s again use Matic for another example.
What is Matic? An L2 solution, meaning it acts as an add-on layer to Ethereum that does not seek to change the original blockchain layer. Polygon emerged to provide faster transactions and lower costs for users.
Quick stats:
- Supply 8.7B
- Price: 0.75 cents
- Market Cap: 6.5B
Now that we know what Matic is and some basic stats we can compare it to other L2 projects.
Optimism
Optimism is a low-cost and lightning-fast Ethereum L2 blockchain. See the similarities?
Quick stats:
- Supply: 234 Million
- Price: 0.90 cents
- Market cap: $212 M
That means both of them are L2s. But Matic has a market cap 30x (times) bigger than OP. So OP is worth 30 times less, but price per token is higher than Matic. Now you see why price is BS and market cap is not.
From the outside by just looking at OP people might think “Oh this is worth 90 cents per token while Matic is 70 cents per token, so OP is more expensive”, Wrong!
Using this analogy we could say that there is a possibility that OP is undervalued compared to other L2 in the market. And that if OP reaches the same market cap there will be a 30x gain.
Of course, there are tons of other important information to take into account like transactions per day, total unique wallet addresses, technology, community, total developers building on the protocol, and many other things. But using the market cap comparison can give you a quick basic filter that you can later continue to add more and more subfilters.
I hope this helps you out, leave a clap, it’s free!
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