At the time of publication, a Bitcoin (BTC) is worth $ 47,247, while a Dogecoin (DOGE) is worth about $ 0.068. If you are new to cryptography or markets, you may initially think: Hey, DOGE is cheaper than Bitcoin and, if you gain enough strength, you might be able to reach BTC and rise to over $ 20,000 too. This way of thinking, however, is illogical. Why? Market capitalization and asset offering.
Market capitalization is the combined dollar value of an asset’s current offering. It changes as the value of a particular asset increases and decreases. Crypto sites, such as CoinMarketCap, rank each cryptocurrency in order of market capitalization. Bitcoin is a longtime favorite in this category, with a market capitalization of around $ 879 billion at the time of publication.
Market capitalization takes into account the current supply of each asset. The circulating offer is the quantity of any asset circulating freely in the market. Multiply the current offering by the price of the asset and you will get its market value.
Assets with a higher current supply tend to be traded at cheaper prices in terms of dollar value per currency or token. BTC currently maintains a comparatively low circulating supply of around 18.6 million, and although that number increases slowly based on mining, its maximum supply is still relatively small, at 21 million coins. Meanwhile, Dogecoin has a circulating stock of around 128.3 billion, based on CoinMarketCap figures.
Given DOGE’s current supply, its market value would reach approximately US $ 800 billion if each currency were valued at around US $ 6.23. Meanwhile, Bitcoin is worth more than $ 40,000 per currency close to the same market capitalization due to its low supply in circulation.
Reaching a price of up to $ 1,500 per DOGE would require the asset to have a market capitalization of approximately $ 192.4 trillion. At the time of publication, the entire crypto market had a market capitalization of around $ 1.46 trillion.
Generally, assets with a low current supply may have a higher price per currency than assets with a large amount of supply. Yearn.finance’s YFI, for example, maintains a very small circulating stock of just 36,635. YFI went from approximately $ 900 in July 2020 to $ 40,000 in September 2020. A plethora of other components influence price increases, but normally, if an asset has a comparatively higher current supply, its price per currency cannot be directly compared to the price of coins with a lower offer.
Cryptographic assets also often maintain a maximum supply programmed into your code. The available supply of each asset grows continuously through various forms of blockchain network validation – i.e. mining or staking – until it reaches its maximum supply. Prices may dilute as currencies or tokens flow into their related circulating supply, as validators tend to sell their rewards for supporting the network to pay their costs of doing business.
What is the difference between total supply and maximum supply? “The total offer refers to the number of coins or tokens that currently exist and are in circulation or blocked in some way,” writes Henrique Erhardt in an article for the Binance Academy, adding: “It is the sum of the coins that have already been mined (or issued) minus the total number of coins that have been burned or destroyed. “
Meanwhile, the maximum supply is the all-time supply of an asset or, more specifically, the total amount of coins or tokens that have been or can be created. This means that once the maximum supply is reached, there will be no way to produce more coins or tokens.
Understanding the concept of market capitalization with respect to the price of any asset can be important, allowing you to evaluate the cryptographic space in a more realistic way. You can look at the price of a single Bitcoin and consider it very expensive, immediately shifting your focus to something cheaper.
An abundance of information goes into investing in cryptography. Assets vary in their use cases, adoption, profit potential and associated risks, among other factors. Seeing each asset in the light of its specific market value, price and offer, however, can help in assessing the market.