There is a widespread opinion that market capitalization of cryptocurrency is the most accurate measure of value and is even more important than price. Some even say that per-coin price is meaningless. As proof — even on the cryptocurrency rate checking resources coins are listed according to their market cap, not the price.

So, what is this mysterious market capitalization? It is a total value of all coins, i.e. total number of coins multiplied by price of one coin. So for cryptocurrency with 1 mln coins 1$ each, market cap would be equal $1mln. Market cap, in other words, total value of cryptocurrency, and its price are not directly or inversely proportional — there is no correlation. Bitcoin, for example, has comparatively low number of coins in supply, but the highest price, so it has the largest market cap. At the same time, price can be low, but if there are a lot of coins in turnover, market cap is large — for example, Cardano: one coin equals $0,3 at the moment of writing this article, but total market cap is $10,296,832,356 with the 6th place in the top of market cap cryptocurrencies.

The main argument of market cap devotees is that the price of one share is not an indicator of a cryptocurrency overall value. It doesn’t tell us anything about the size or profitability of the company as a whole. That’s why it is useful to look at the market cap — you can see the crypto scale and value.

The problem with market cap is that it’s quite easy to trick the system: create 100 bln of some coin, trade it on exchange for $1 (in calculating the market cap the last traded price is used) and you have cryptocurrency with $100 bln market cap. But this artificial increase of total price doesn’t add any real value — it’s still just number of virtual coins, that has no potential. The true value is determined by number of people who want to buy it. Also there are many coins where only small part of total supply is available for trading and is considered as market cap. So market cap can be easily changed by flowing more coins into the market — and, most likely, the price per coin will fall sharply. Will market cap advocates continue to insist on total value importance when coins they hold will be worth much less but hold large market cap?

Market capitalization may be a misleading metric. It doesn’t mean that it is always like that, but relying only on this factor may be disappointing. Market cap is one of cryptocurrency characteristics, that should be taken to attention when choosing what coin to buy, but should not be the main guide, or you may end up buying some unknown coin from the top-list, which market cap was artificially blown up to enormous scale. The point is you can’t pay attention only to market cap — it is too careless.

It doesn’t mean that market cap doesn’t matter at all, but often there is too much concentration on it, so other characteristics are eluding. The truth is, market cap alone doesn’t tell anything about coin’s true scale and profitability, as well as price per coin. When choosing a coin, all characteristics and their balance must be taken into account. And that’s not only market cap and price. Liquidity, for example, may be even more important than those two mentioned above — the possibility to buy or sell coin any time at fair price, and, what is more important, even large amount of traded coins won’t seriously affect the market. Daily traded volume is also a great indicator showing how much money being actually used and moved.

One more important aspect for the value of crypto is having some practical use. Many of altcoins that was launched in the last few years, are backed up by some technology, that can be actually implemented — for example, Ripple, that offers the solution for problem of interoperability in financial industry with comparatively low price of $1,14 but large market cap of $44,596,115,730 (ceding only to Bitcoin and Ethereum). Recently Western Union announced start of testing Ripple for money transfers, that just strengthened positions of the coin. Another example — BON, issued during Token Sale of Bonpay, that has small market cap ($13,429,700), compared to other cryptocurrencies, but the coin shows rise in price and increasing demand. The secret is that secure and simple in use Bonpay service attracts more and more people who store their cryptofunds in wallets and spend them with prepaid card. Plus project is constantly being developed and improved, so coin price is steadily going up.

To get a picture of cryptocurrency or company market value, you must pay attention to all sides. Putting emphasis only on market cap may be misleading. Cryptocurrency market is overcrowded with coins, and many of them have large total value or high per-coin price, but at the same time they have no future. Recently the utility of cryptocurrency and project behind it affects the demand most — and that is important factor to lean on, which will never let down. If company has a utility besides cryptocurrency, some real product, that can and certainly will be used by people, then you may be sure, that this coin is valuable and has a future, no matter what market cap it has.

Disclaimer: Not financial advice, provided for educational purposes only.