What Market Capital Tells You About Cryptos in Fintech Industry
FinTech stands for financial technology that mainly concerns remittance, payments, equity crowdfunding, and peer-to-peer lending sectors. Over the years it has shown increased activity in capital markets and has started providing technological solutions in the front, middle and back office problems. The said solutions concern the usage of advanced tech such as distributed ledgers and cloud technologies, Artificial Intelligence (AI) and Robotic Process Automation (RPA). The distributed ledger technology has evolved into Blockchain Technology, the main power behind cryptocurrencies.
Cryptocurrencies are commonly regarded as encrypted digital assets for extreme security. Cryptos are used to trade goods and services, along with investments and currency trading. Cryptocurrencies today are largely limited to the early buyers. For example, of the 10 million Bitcoin owners worldwide, 50% of these people are just holding Bitcoin purely for the purpose of investment. There are cryptos other than Bitcoin and some of them are in the project stage. This is why when you are investing in a crypto project, or buying any crypto token, you need to consider the market capital or the market cap of the cryptocurrency.
What does Market Capital tell you for a company/organization/project?
The market cap of a crypto project essentially represents the demand and worth for the crypto project. If more people buy the concerned cryptos or bidding higher prices for it, the market cap for the crypto increases. The dominance of a crypto in the market is dependent on its market cap and this is the prime reason why market cap is considered as the most important factor for ranking cryptocurrencies. If the market cap is high, it shows there is a strong company or organization behind a crypto project. Initially, investors are always attracted towards cryptos with high market cap.
Therefore, what really determines the market cap of a cryptocurrency? There is a simple formula that financial experts use to calculate the market cap of a cryptocurrency. You need to multiply the current price by the circulating supply as per below:
Market Cap = Price (X times) Circulating Supply
The equation above shows the important factors highlighting the importance of market capital. There are websites such as Coinmarketcap that calculate prices considering the volume-weighted average of crypto prices featured on different exchanges. You must also remember the importance of monitoring the circulating supply of a cryptocurrency — not the total supply. After all, it is only the circulating supply that is really available on the market right now.
Market capitalization effects on the price and utilization.
Market cap affects the price and utilization of cryptos but does not determine you much about the future. People will consider the market cap and will expect the value to go up. This is the main factor investors consider before buying or investing in a cryptocurrency. All in all, without a good market cap, people would never even consider buying a certain cryptocurrency.
You must also consider that prices of certain cryptocurrencies could be bullish in the short term. This is due to certain schemes which are very popular in the crypto market. There are also markets named ‘pumps’ and ‘dumps’ that affect the prices of cryptos. In actuality, this will not concretely affect the future utility of the cryptocurrency. This is just a mere attempt to make short to medium-term gains.
In conclusion, market capitalization is used to measure the strength of a crypto asset and a high market cap leads other investors to buy the crypto because such projects have less risk of failing. The market cap can also show how stable a crypto project is and how much interest that people are drawn to it. Although these facts might be true, we cannot solely rely on the market cap to evaluate the future potential of any crypto assets.
References:
- https://coinmarketcap.com/
- https://www.toptal.com/finance/market-research-analysts/cryptocurrency-market
- https://www.bitpanda.com/academy/en/lessons/what-is-market-capitalisation-market-cap-and-why-does-it-matter/
- https://www.coinist.io/cryptocurrency-market-cap/
- https://events.development.asia/system/files/materials/2017/07/201707-capital-market-and-fintech.pdf
