In today’s article, we will be discussing why price is zero indication of whether a Cryptocurrency is cheap or expensive is – a coin could be $100 and still be cheaper than a coin worth $0.01.
- Does Price Matter?
- How To Find Cheap Cryptocurrencies
- What Does Market Cap Mean?
- Why Only Market Cap Matters
- How Does This Affect Investing?
- Follow Future Articles
DOES PRICE MATTER?
“What’s the best Cryptocurrency under $1?”
People regularly ask this question while in search of the ‘next cheap cryptocurrency to invest in’ but it makes absolutely no sense as a question.
You’re probably thinking:
“What’s the problem with this?”
If you don’t know, we strongly suggest that you keep reading!
The easiest way to explain is to simply show you a picture of a list of the top Cryptocurrencies.
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Check out the screenshot below and notice the red box we’ve used to circle the price of a Crypto named Ripple.
It’s listed as the 4th biggest cryptocurrency on Coinmarketcap.com (the biggest website for checking up-to-date Crypto prices) and yet a single token costs just $0.21 (21 cents).
How can that be? It’s so cheap that surely it can’t be one of the biggest cryptocurrencies?!
Now, we’ve included the same picture again below and we want you to look at it and do 2 things:
- Look at all of values under the price column for those top 10 (red column)
- Now look at the values under the column ‘market cap’ (blue column)
Do you notice that the top 10 cryptocurrencies (including Bitcoin) aren’t ordered in terms of price?
But they ARE ordered from the highest market cap to the lowest.
Why Is That?
Because the ‘value of a cryptocurrency coin/token’ has nothing to do with price BUT it has everything to do with market cap.
And that’s why…
When you are trying to find the next cheap cryptocurrency that may increase 100x, you need to stop looking at price and start looking at market caps.
In a second, we’re going to explain exactly what crypto market cap means and why it’s so important.
First though, we know that some of you have probably found this information helpful and are ready to move on which is why we’re going to give you this tip right now which is…
HOW TO FIND CHEAP CRYPTOCURRENCIES
We’re not talking about fake cheap coins that may cost just 21 cents but aren’t really cheap at all. We’re talking about genuinely cheap coins that have the potential to increase 10x, 100x, maybe even 1000x.
All you have to do is go on the 2nd best website in cryptocurrencies (guess which is number #1) called Coinmarketcap.com which is where we took those screenshots from above from.
It will automatically show you the top 100 coins, ordered by market cap.
In other words, ordered from most expensive to least expensive.
As you scroll down the list, you’ll gradually reach the cheaper coins which have the potential to increase a whole lot more than the coins at the top.
Beware: Do not take this as advice for coins you should buy!
These coins nearer to the bottom are cheaper for a reason and they’re also a much bigger risk.
The higher the reward, the bigger the risk.
What you need to do is learn how to analyse coins to see which of these cheap coins are undervalued; this is the Warren Buffett method of investing and this is our way too at Crypto Gurus.
Better yet, what if someone analysed the market and found cheap coins for you?
Check out our articles page, hit the ‘Reviews’ tab and you can see some of our research on the most undervalued coins in the market right now!
Now that you guys know what a cheap cryptocurrency actually is – one with a low market cap, not necessarily a low price – let’s move on to what market cap actually means.
WHAT DOES MARKET CAP MEAN?
Market capitalisation is the market value of a Cryptocurrencies outstanding coins. In other words, if you were to add up the price of all of the circulating coins of a Cryptocurrency, you would find the market cap.
For the mathematicians out there, you’ll probably prefer a formula so here it is:
Market Cap = Coin Price x Coin Supply
Another way to think of the market cap is this:
The market cap is the amount of investment currently in a Cryptocurrency.
Remember this sentence because it’s very important!
Let’s rearrange the previous formula quickly so that we can see coin price more easily:
Coin Price = Market Cap / Coin Supply
Now, we’ll use an example to explain why coin price means very little.
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WHY ONLY MARKET CAP MATTERS
Let’s say you have a coin called Crypto Gurus Coins:
- The Crypto Gurus Coin has $100 million invested into it i.e.
it has a market cap of $100 million
- The Coin supply is also 100 million
What will the price be?
Coin Price = $100 million/100 million
Therefore, the coin price = $1
But, what happens if we reduce the supply to 10 million?
Coin Price = $100 million / 10 million
Now, the coin price = $10
Even though the same amount of money is invested in the coin, as ingle coins is suddenly worth 10x the value before.
Why is that?
Because token price is affected by supply
This point above is also incredibly important and you should try to remember it! The reason that this is so important is because:
All cryptocurrencies have a different supply
Let’s say a coin has a supply of 100 billion.
How much will have to be invested for it each token to cost $1?
Using our formula:
Coin Price = Market Cap / Supply
$1 = Market Cap / 1 billion
The market cap would have to be $1 billion.
In other words, the total investments in the coin would have to be $1 billion for the token price to just be $1.
Unless the coin is amazing, there is very little chance of this and so it could be overvalued even if it cost just $0.50
What about a coin with a supply of 1 million?
In this case, if just $1 million were invested in the coin, each one would be worth $1!
Which coin do you think is more likely to reach a price of $1?
Obviously, it’s the one with a supply of just 1 million And, it’s for this exact reason that you cannot use the token price as a guide!
A coin can be $10 and be very cheap while another coin can be $0.01 and expensive
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HOW DOES THIS AFFECT INVESTING?
When we say ‘cheap’ and ‘expensive’, we’re referring to the amount invested in them because this is the key factor to decide how much they can increase:
- A ‘cheap’ coin can increase 10x, 100x, 1000x relatively easily
- An expensive coin cannot increase so much because it is already expensive
Let’s use an example to explain:
- Coin A has a market cap of $10 million
- Coin B has a market cap of $100 million
Therefore, the total investments in Coin A are $10 million and the total investments in Coin B are $100 million
For Coin A its market cap to increase 10x, it would simply require that the investments increased to $100 million i.e.
a $90 million increase
For Coin B to increase its market cap 10x, it would require that investments increased to $1,000 million ($1 billion) i.e.
a $900 million increase
Which is more likely to increase 10x?
Assuming all other things are equal, coin A is much more likely to increase 10x because it requires much less extra investment to do so.
When investing, you always have to consider the risk/reward ratio – coins with lower market caps might have much higher potential returns but they also carry higher associated risk.
A smaller percentage of any portfolio should be committed to the higher risk coins.
In other words, larger market cap coins should make up a larger portion of a good portfolio than smaller cap coins.
That’s the end of the article! Thanks for stopping by and don’t forget to check out our other articles for regular Crypto/ICO reviews and market updates.
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Disclaimer: None of the above is financial advice.
Always do your own research.
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This article has been provided by the CEO; Tom Heavey.