Even casual investors are aware of the term market cap, short for “market capitalization.” It’s a simple formula: the number of shares of stock, multiplied by the current stock price, tells you just how valuable that company is, at least in the eyes of Wall Street. It has the same definition in bitcoin and other altcoins.
However, the big difference between market cap for stocks and market cap for altcoins is in the application.
Altcoins have more in common with commodity or currency markets than stocks, although we will spare you the lengthy arguments over this among finance types. Remember the structure of any altcoin here. It is a big network of shared nodes, where that altcoin and only that altcoin is mined and its transactions are entered into the blockchain. So if the market cap of an altcoin rises, that is a rising tide that lifts all boats.
Market cap with altcoins is a useful tool for measuring the long-term prospects of an investment. For example, if there are a billion coins, worth a dollar, and you are hoping to see bitcoin-like returns of the coin being worth thousands, that would require trillions to flow into the altcoin.
On the other hand, if you just want to see that coin double in price, that means $1 billion going into it. While still not completely likely, this scenario is substantially more possible. So when considering investing, look at the total number of coins in circulation, how many coins the network will mine, and how much cash would need to go into the market to drive the returns for which you are looking. For more guidance on altcoins and their market cap, read the Bitcoin Market Journal blog regularly and subscribe to the Bitcoin Market Journal newsletter!