At the beginning of our crypto journey, many of us have probably received the advice to ignore cryptocurrency’s price and instead, pay attention to its market cap as it is supposed to indicate how strong and promising a coin is and give us an idea of what the future holds for it. To illustrate this, let’s have a look at Ripple: the price of the coin has never been impressive — just $0,30 at the moment of writing, but it holds second place by market cap, has a huge army of supporters, and a strong team with a long-term vision behind it.
The market cap of a cryptocurrency is the total number of coins in circulation multiplied by its price. And here lies the first problem. How many bitcoins that are supposed to be in circulation are actually circulating? Although it’s hard to say for sure, nearly half of BTC have never been moved, which means that a very big part of the coin’s market cap is open to question.
Another factor that complicates the situation with cap rate, is that sites like Coinmarketcap cannot be one hundred percent accurate as they do not take into consideration things such as market manipulation. It’s no secret that the crypto market can be manipulated by the whales who hold large numbers of coins and can trick people into buying in order to get a higher price on a certain coin.
Also, such things as a coin’s market cap can be easily faked. In theory, anyone can issue their token with a large supply of coins, list it on an exchange, and even if it is sold for a modest price, still get a place on top of the list thanks to the large number of coins.
But one of the most fundamental problems is that we keep evaluating cryptocurrency like it’s fiat money. The irony of this situation is quite obvious: a digital currency that was created as a possible alternative money and the future of the world’s economy is actually reliant on the USD.
How did that happen?
Unfortunately, the easy profits that crypto promises attracted a lot of fortune-seekers that use social media as a powerful instrument for achieving their goals and not too many developers and strategists. Every meaningful project should be backed by an enthusiastic team, hard work, and wise investments. Although the role of the community is important, a strong base of skills and knowledge should still be the priority.
What Are the Alternatives?
One of the ways out of the current situation is to start measuring the prices of crypto in Bitcoin instead of USD so that institutional investors will “set aside their dollar-centric valuation models and recognize that value is a different concept in the crypto world.” Although this idea probably won’t be welcomed by Bitcoin skeptics, it is still a better alternative if we think about the entire picture of cryptocurrencies’ development.
Got Any Thoughts?
Have you got your own thoughts on what the best way to evaluate the cryptocurrency market is? Do you think pegging altcoin prices to Bitcoin is a good idea? Share your wisdom with the Lumi Wallet community on our Telegram public chat or follow us on Twitter, Facebook, and Reddit to find more interesting facts and news about the crypto and blockchain industry.