Tokenomics – Crypto Marketcap Explained – part one

Tokenomics – Crypto Market Cap Explained – part one

One of the first and more definitive articles we wanted to share was around crypto marketcap and Tokenomics, which is an industry-fandom term for the economics of tokens (cryptocurrencies). If you are familiar with our journey, then you know how open we are about the losses we took when first starting in the crypto space. That is one of the big reasons this resource site was started. Aside from wanting a place to have all of our own research tools in one place, we also wanted to share the highs and lows of our crypto journey. And a key moment in that journey is when we learned about Tokenomics.

In the early days of our crypto adventure, we went FOMO. Meaning we really had a Fear Of Missing Out on the coin that was the Flavor of the Month (… or really Minute). We were moving in and out of coins always trying to capture the next wave, and inevitably, always missing it. It wasn’t until we truly learned about coins, and Tokenomics, that we started to see our portfolios turn around.

We will have another article on the primary things you want to look for when deciding what coin to invest in, however,

The three big items you want to research when doing crypto due diligence are:

1. Quality of the project itself, and the team behind it
2. Project adoption, case-use, and the sentiment behind it
3. Tokenomics and the numbers behind it

Nail those three things while keeping diamond hands once your decision has been made, and you will be a knowledgeable investor likely to see gains.

Nail those three things while keeping diamond hands once your decision has been made, and you will be a knowledgeable investor likely to see gains. However, always remember that no matter how much research you do, nothing is guaranteed… especially not gains when it comes to the world of crypto.

Of the three things listed above, Tokenomics is the easiest to master because the information is right there, updated 24/7. While a lot of metrics go into the deeper layers of Tokenomics, we are going to focus on what we, in our own opinion, consider the ‘essentials’.

When doing due diligence on any coin, these are the very first things we look at:

• Coin / Altcoin Price
• Supply
• Crypto Marketcap
• Daily Volume

These 4 metrics are the foundation of all our cryptocurrency due diligence. So, what are they? Before I explain, a quick note. The below info is how we at UnderstandingCrypto.info view the Tokenomics. Others may have a different view. We are not financial advisors, and this is not financial advice. Always do your own due diligence. However, we wanted to share the below information to offer an informative foundation for you while sharing what works for us. With that out of the way…

Coin / Altcoin Price Explained – Bitcoin is the main cryptocurrency. The prime coin of them all. Everything else, including Ethereum, are altcoins. The altcoin price has usually moved in tangent with bitcoin, but not always. It is often when that divergence happens that people take notice. Otherwise, it would be beneficial just to buy into bitcoin and nothing else. However, if you are looking for more aggressive gains, then you want to find coins that can grow outside of bitcoin’s growth.

Supply Explained – This is how ‘many’ of the coin are available / released at any given moment. Some cryptocurrencies are at their max coins released. Others, such as bitcoin, are still releasing coins. Others will continue to grow as staking inflation will continue to add to the total supply. Supply is important because it helps generate other metrics. And more importantly, it lets you know how ‘scarce’ a coin is. If 2 coins are being used equally, but 1 has a supply of 20 million while the other has a supply of 20 billion, the former ‘should’ be more valuable if everything else is equal – because it is rarer. This is why Ethereum 2.0 is so exciting. It has the opportunity to truly become deflationary. I’ll drop another article on that to go into more detail on the hows and whys behind Ethereum 2.0. It’s too much for this space.

Crypto Market Cap Explained – The crypto marketcap is essentially the combination of the first two metrics, (Price x Supply). Super simple at its core, but one of the most critical pieces of information you will use when examining the potential ‘moon’ status of a coin. Also, when ‘ranking’ cryptocurrencies, crypto marketcap is often the primary metric used – this is important.

Daily Volume Explained – For our article, daily volume is defined as how much value is bought and sold of a coin over a rolling 24-hour period. This number is important, because it gives you a starting point in doing due diligence on the 2^nd of the three things to look at when deciding what cryptocurrency to invest in – adoption and sentiment. The more people are talking about it, using it, investing in it… or exiting out of it, the more daily volume (kind of). Not all daily volume is created equal. Because this article is already long, we will cover Daily Volume and how we see it / use it in Tokenomics part 2 – Crypto Daily Volume.

These 4 metrics are critical in understanding the Tokenomics of a cryptocurrency. For the rest of this article, I am going to use 5 coins as examples (Bitcoin, Ethereum, Cardano, Polygon and Ethereum Classic). Ethereum and Polygon we currently have positions in. Bitcoin, Cardano and Ethereum Classic we do not. However, at times our mining rigs may/will flip over to Ethereum Classic, so it is a position we hold intermittently. Also, at the time of writing, Bitcoin was #1 in marketcap, Ethereum #2, Cardano #3, Polygon #19 and Ethereum Classic #21. We won’t be looking at anything else when comparing these 5 coins, other than the 4 metrics above. We went with these 5 to compare the Tokenomics of the top 3 coins while also adding in some others with varying prices for perspective.

So first, a quick snapshot of the Essential Tokenomics of the 5 coins at the time of this article (9/1/2024):

Some things you may notice are:

• BTC has, by far, the highest price while also having, by far, the lowest supply.
• ADA and MATIC both have significantly lower prices than ETC, and less daily volume, but are ranked higher (because of the crypto marketcap).
• ETH daily volume is nearly the same as bitcoins but is a fraction of BTC’s price.

The first thing we do when looking at Tokenomics, is understand that for now, most altcoins move with bitcoin. Generally speaking, if bitcoin tanks, altcoins tank. If bitcoin goes up in value, altcoins usually see a surge. This may not be the case in a year or two, but for now, and for the past 5+ years, it has followed along that path. As mentioned earlier, when we see a coin explode in value outside of that, such as Dogecoin after the Elon Musk tweets, then that is when real gains (and losses) can happen.

In short though, if a coin wont increase in value at a rate faster than bitcoin, there is no reason to invest in it. Just keep your money in bitcoin, which is widely considered digital gold.

In short though, if a coin wont increase in value at a rate faster than bitcoin, there is no reason to invest in it. Just keep your money in bitcoin, which is widely considered digital gold. Now, if you want to ‘support’ a coin, which is different than investing in it, then by all means, do so. But if all you want to do is heat up your cold storage with bountiful gains, then either stay in bitcoin or a coin that will outpace bitcoin.

Understanding that point is critical, because it is that premise that is the foundation of our due diligence. We compare everything to bitcoin, to see where growth opportunities are. If this is a premise you don’t agree with, then the rest of the article may not be as valuable for you.

Now that we’ve established the #1 cryptocurrency, BTC as our baseline, it’s time to compare.

Let’s start with ETH. For Ethereum to overtake bitcoin and become the #1 coin by crypto marketcap, then it would have to have an equivalent, modern-day price of at least $7,844.03. After you do the rest of your due diligence (check out our Tokenomics part 2 – Crypto Daily Volume for a starting point) you would ask yourself, is that realistic? We think after ETH 2.0 comes out, it is entirely possible. Now, by then, BTC will likely go up or down, which means ETH likely will as well. But we ask ourselves, if #2 (adoption, sentiment, usage, etc) and #1 (team and project quality) are good enough, will it continue to bridge, and eventually close the gap on bitcoin?

Another way to look at it is, if bitcoin hits near $100,000 which many people believe it will far exceed, could ETH hit $16,000? If so, that would mean ETH has equaled BTC’s marketcap and is in line with our previous sentiment. If we think ETH will only be at $7,500 when BTC hits $100,000, then they would’ve grown at the same, current rate.

How did we calculate the altcoin price by using crypto marketcap?

Answer: We divided the current BTC Marketcap by the current ETH marketcap (which was 2.06) and multiplied that by ETH’s current price. Formula: (Target crypto marketcap / Focus crypto marketcap) * Focus altcoin price

Formula: (Target crypto marketcap / Focus crypto marketcap) * Focus altcoin price

Now, using that same idea, let’s take a look at the #3 cryptocurrency, ADA. For it to hit #1, which many fans of the altcoin truly believe it will, ADA needs to hit $28.57. That also is entirely possible. If ADA continues to grow as fans think, then rising 10x would not be unheard of. To get to that number, we followed the same formula. (BTC marketcap / ADA marketcap) (9.99) x ADA current price. However, if BTC hits $100,000, ADA would have to be at $57.13. More difficult to do for sure.

Where the wheels fall of for current day investors of ADA is in hoping their $2.86 altcoin will hit $100. For that, it would need to grow in value 10x OVER BTC’s growth on its way to $100k, PLUS an additional 40+%. I guess anything is possible, but unless you are a supporter of the coin, the investment opportunity of a $100 ADA isn’t as practical. Don’t get me wrong, even a 10x+ gain many would be happy with. But $100 ADA in the time it takes BTC to hit $100,000 is difficult to rationalize.

Let’s now do the same for MATIC and ETC. However, we wont compare them with having to beat bitcoin and become #1. If you research either project, you will see it is unlikely either become #1 in the next 10 years. But, could they become #3, which in current state would mean a crypto marketcap of around $90 billion?

For Matic to eventually become #3, we would compare ADA marketcap / MATIC marketcap (9.69 – incidentally similar to what is needed for ADA to reach BTC). We then multiply that by MATIC’s current price and get $14.14. If we compare that to Bitcoin’s growth up to $100,000, it would mean MATIC would have to hit around $28.50. Both numbers are realistic, and that would put MATIC at #3 in current state Tokenomics, which of course is in a vacuum – meaning not accounting for any other factors. For those wondering if MATIC could hit $100, consider it would need a 3.5x crypto marketcap growth OVER its already 10k gain to get to #3. Incidentally, it would still be #3, and a far $125b UNDER ETH. That is why we are so excited about MATIC.

Lastly, for ETC to become #3, we would compare current ADA market cap / ETC marketcap (10.27). We then multiply that by ETC’s current price and get $704.11. If it follows at the same growth as BTC, then ETC would need to be at around $1,410 when BTC hits $100,000 to be #3.

It is important to note that this is an extremely simply way to look at it, albeit effective. If supply of the coins change (unrecoverable wallets, token burning, etc), then crypto marketcap could change since it is influenced by supply. Plus, all sorts of things go into price movement. However, breaking down these elements at their core will help you start deciding what is ‘realistic’. Maybe you don’t expect your favorite altcoin to hit #1… or even #3. Maybe you want to see how much it needs to hit to enter top 10… or top 25. Using these benchmarks can really help you answer the question, will XX coin hit $100 and go to the moooon?

Hopefully this article on Tokenomics and crypto marketcap helps you make better decisions. In part 2, we will dive into crypto daily volume, which will help give you an ‘indicator’ of how ‘possible’ it is for the coins to hit the prices you key in on using the above method. It’s one thing to ‘think’ these altcoins we talked about ‘can’ go up, it’s another to get a great indicator of its possibility. So rather than wondering if a price point is realistic in our heads, we can support it, in part, by using Crypto Daily Volume.

If you have any questions, drop a comment below or reach out to us directly. Thanks for stopping by UnderstandingCrypto.info!

Helpful Information

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