I'm writing this for all of my friends that just can't seem to get a grasp on valuation and what to watch out for concerning the price of all of these new and exciting cryptocurrencies arriving to the market almost daily. I know that most people understand this, but some people just don't get it and it's always good to take a look at things besides price.
The best example right now is the three biggies. Bitcoin with approximately 17 million coins out there is worth over 200 Billion dollars at $17,000 per coin. So, 17,000 multiplied by 17 million = 289 Billion dollars. Ethereum, currently trading at $800 dollars per coin, has 96 million coins and a 76 Billion dollar market capitalization. Finally, ripple which is a mere .76 has 48 Billion! Coins out there and a 26 million dollar market capitalization.
So, when investing watch out for how many actual coins are out there! The best example for this is one I use when people have the same problem evaluating stocks. Mcdonalds is my favorite one to use because it has almost exactly 1 billion shares outstanding and the stock is currently trading at $168 dollars per share. So, Mcdonalds' market capitalization is $167 Billion dollars. Easy right?
So just be careful with some ofthese new ICOs, some with offerings containing Billions of coins. Sure it might only be a few bucks, but the chance of it becoming the next $1000 coin is slim.
And as just one final example, let's revisit Ethereum. It doesn't have to go to $10,000 or $20,000 to take the crown as the king Crypto. At $3000, it's market capitalization would be close to equaling Bitcoin. That is $3000 multiplied by 80 million, or 240 Billion.
Happy Trading!