Market caps matter more than just the price.

On every cryptocurrency forum, enthusiasts are cheering, "To the moon!" about their favorite coins as the rising tide, or more accurately, rising tsunami washes all cryptocurrencies skyward.

That's when you see traders start fantasizing: "This could go to $100 a coin! $500! $1000!"

It's true, some coins have seen meteoric rises to hundreds of dollars per coin. But it's important to look more carefully at the market capitalization - or market cap - to get a true idea of the coin's value.

Bear with me for this simple mathematical analogy:

Say you have something that is agreed to be worth $10 as a whole amount. I don't know, a nice pie, for example (OK, that is an expensive pie, but you get the point). You split it into 5 pieces. Each piece is worth $2, since it is a fifth of the whole amount. Or, you could split the pie into 10 pieces. Then, each piece would be worth $1 since it is one-tenth of the whole amount. It is a proportional relationship to the value of the entire amount.

This, in a nutshell, is how market cap works. Take an example like Monero. Monero has a circulation of about 15.4 million coins. Like a pie being split into pieces, you can divide Monero's market cap of $5.4 billion dollars by the total circulation of 15.5 million, and voila, you get it's value per coin of about $350. Simple.

Now along comes Verge. Verge had a really exciting day yesterday, as you may have noticed from the posts I wrote the other day. Everyone is getting super-excited as it rises in price, more than tripling its value in satoshis and more than quadrupling its value compared to USD. It surged from 2 cents to nearly 10 cents at one point!

And this is when people started saying, "To the mooooon!!!! It's going to a dollar! Ten dollars! Twenty!"

They had forgotten about the market cap.

Verge has a circulation of 16 billion - with a B - 16 billion coins. One thousand times more than Monero's circulation. If Verge went to one dollar, it would have a market cap of 16 billion dollars over night. That would be triple the market cap of Monero. A ten dollar Verge coin would place the currency at a ridiculous $160 billion market cap - a third of all cryptocurrency's market cap together.

Between the two, Monero is a far more recognized coin with a much larger user base. It's fun to imagine, yet extremely unlikely that this Verge currency is going to triple Monero's value any time soon here. More likely, it might catch up to Monero in relative value. The key word here is relative.

If Verge reached the same status as Monero monetarily speaking, it would be worth about 35 cents per coin, because its circulation is a THOUSAND times greater than Monero's circulation. So, to have the same market cap, it would be valued at around 35 cents USD.

Having said that, other recent coins have defied expectations. Cardano stands out among the crowd (I recommended Cardano about two weeks ago). Cardano has a huge circulation of coins - 26 bilion coins at the moment! Yet, it has grown its market cap from about $700 million in November, to an eye-melting $14 billion today! That is a stupefying degree of growth.

So, keep an eye on market caps instead of just prices. Think proportionally. The entire cryptocurrency market is reaching $600 billion soon. Think of your coin in relation to that whole pie. It will give you a better idea of where things might be going. This may help you to avoid throwing money in from FOMO when you should know, just by doing a little math - that a coin is peaking in price based on its market cap.

*This is not professional trading advice - just my opinion!

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