Atix Explains: How Does The Cryptocurrency Market Works
Disclaimer: AtixLabs does not provide any financial advice. This article aims exclusively to educate new users about the general features of the cryptocurrency market.
The cryptocurrency market continues to grow making news as more money circulates in this digital form. This evolving process has started to make the general public warier of the impact of this market’s disruptive nature.
In short, the cryptocurrency market is part of the financial sector, where the market acts as a system of exchange that sets the total dollar value of cryptocurrencies, which are rated by their supply and demand.
The financial side of cryptocurrencies is tightly related to their development, being utility of the main features we are focused on here in Atix and that we’ll see as a key part for the growth of this new market, which we’ll proceed to explain.
Crypto Market Cap
An important item of information that keeps attracting the attention of the general public is to follow the cryptocurrency market capitalization, which currently stands nearly at $222 billion at the moment of this publication. This number refers to the current value of the market or its economic dimension.
Market capitalization is a necessary calculation that lets investors know how much a company’s shares are worth. In the traditional market, this is calculated by the amount of publicly traded shares currently used by both the company and its investors.
At the moment, bitcoin is the cryptocurrency with major trading volume, with a current $143 billion market cap at the moment of this publication.
In the cryptocurrency market, capitalization is calculated by multiplying the current number of coins or tokens in circulation by the most recent price a coin has been bought. Exchange platforms and other forms of trading are at the end of this process, where users, investors, and companies trade cryptocurrencies.
A Coin’s Value
A common doubt is what sets the price for a currency in the market. In the case of fiat money, this value is determined by the trust on the government that is issuing the currency. This means that the fiat money is backed by the perception that is valuable.
In the case of cryptocurrencies, while their value is subjected to the perception of the market on that particular project, its value goes beyond trust. Actually, it can be influenced mostly by the cryptocurrency’s utility, the price of securing the network (for example, in a Proof Of Work protocol), supply and demand, investors trust and real-world application, being the last feature the one that ultimately pushes the needle on the price rates long term.
Another factor to be taken into account when calculating the value of a cryptocurrency is scarcity. In the case of Bitcoin this is a feature that has been repeatedly added as part of its value, now even more highlighted due to its upcoming halving, an event that will leave the issuing of bitcoin units (satoshis) cut to nearly 1.7% a year.
The finite supply of the cryptocurrency works as a boost on its price. Such is the case of Bitcoin, with an emission cap that increases its revenue as it encourages investors to hold it and sell it for a higher value.
Nonetheless, given the ecosystem is still in the early stages, it’s not a strange occurrence that the market is largely influenced by the hype generated by publicity and aimed by uneducated investor sentiment.
Crypto VS. Fiat
After their famous jump in the financial markets in 2017, cryptocurrencies astonishing overall performance has kept enthusiasts on their toes. The cryptocurrency market capitalization has kept a steady growth over the years, with a current $225 billion value at the moment of this publication.
As for today, the evolution of the cryptocurrency market can be measured on it’s real dimension by making a comparison with the traditional market. For example, currently all the Bitcoin, -which occupies 63% of the entire cryptocurrency market capitalization with over $142 billion-, merely represents approximately 1.6% of all the gold at $9.8 trillion.
Small as this market might seem, it’s important to notice the fact that a great part of what drives attention towards cryptocurrency and blockchain it’s their capacity to provide solutions such as financial inclusion and international payments.
Put into perspective, we can observe an interesting development of the cryptocurrency market, where easiness of adoption and utility will be key to the future of this financial technology. Among the upcoming trends that look to tackle cryptocurrency adoption barriers, there are the stablecoins.
As we explained previously, this type of tokens is a viable alternative to fiat money because of their main advantage: price stability. In the future, we could expect new developments in these currencies, opening up new business opportunities for crypto both in the private and public sector in a controlled -and eventually general- space.
In Atix we participate actively in the construction of new blockchain and cryptocurrency protocols, while also creating new tokens to be exchanged in the cryptocurrency market.
Do you have ideas or a project you’d like to develop? Reach out to us at info@atixlabs.com.
