Hello community,
Earlier today I read a post where people had trouble understanding the term “marketcap” (market capitalization) and why some coins are lower ranked than others, even if their price is higher. So I decided to write a quick post for the people out there, who are quite confused by these terms.
Let’s make one thing clear: the price itself does NOT matter. What matters is the marketcap, hence the ranking on Coinmarketcap is based on the marketcap of each coin, Bitcoin having the biggest marketcap, even it is NOT the most expensive coin out there. I’ll give you later a few examples for a better understaing.
How to calculate the marketcap of a certain coin (I’m using BTC for example)
-
Find out the circulating supply (NOT total supply!)
The circulating supply of Bitcoin is: 18,451,237 BTC -
Find out the most recent prince
The current price of one BTC is: $11,161 -
Calculate the Marketcap:
Simply take the circulating supply and multiply it by the current price.
In our case: 18,451,237*11,161= $205,934,256,157 (205 billion dollars)
Why a more expensive coin can be lower ranked (I’m using 42-coin for this example)
OK, now I’ll explain why a such expensive coin like 42-coin (make sure to search for it on Coinmarketcap) is not better ranked than Bitcoin. I’ll be using the same formulas as above.
- Circulating supply: only 42
- Most recent price: $34,123 (3 times more than BTC)
- Marketcap: 42*34,123 = 1,433,166 (1 million dollars, which is 146000 times less than Bitcoin’s)
So you can see that even if one 42-coin is 3 times more expensive than Bitcoin, it is still ranked 966 because of the low market cap.
Let’s see for fun what a 42-coin would cost like, if it would have got the market cap of Bitcoin:
205,000,000,000 ($205 cap) / 42 (supply) = around 4 billion dollar per coin, which is insane.
Investing money in a coin doesn’t necessarily mean that you have to buy the whole coin. $100 invested in a small supply coin like Bitcoin will buy you 0.009 BTC, whereas investing $100 in a coin with a big supply like Ripple (XRP) will buy you 345 XRP. So a beginner might say: “well 345 is a lot more than 0.009”. But this is definitely not true; $100 is still $100, even if you hold just a part of a coin or a full bag of coins. I really hope you understand this.
The Takeaway
Even if all these stats are already displayed and calculated for you on Coinmarketcap, make sure you do a few examples yourself, just to see if you understood everything correctly. If you have questions, write them below.
Please LIKE this post so other who are confused by this topic can read it. Let’s educate this community!
Cheers,
Aezakmi
