CoinMarketCap Explained: How To Use It For Crypto Analysis
The beginning of the crypto journey is almost the same for everyone. Somebody tells you about the bitcoin or you see a post about it shared on social media. Then you find out it’s a cryptocurrency, but you have no idea what it means. Next step is basic research. You type the term in the search bar and hit enter. The first website that appears is CoinMarketCap.
In most cases, it will stay with you for the rest of the journey. The problem is that most people use it only to see the price of the coins and tokens. They don’t know how to use it to collect all the valuable information it provides. That’s why they are missing the chance to discover good crypto projects.
After reading this you are not going to be among them anymore.
I will show you what kind of data exists and what they represent. With that knowledge, you will be able to make your own initial crypto analysis. And who knows, maybe you will buy some coins or tokens just at the right moment.
Note: Numbers on the CoinMarketCap are going to be different depending on when you are reading this. But never mind, it is important to understand how to use these numbers and to know what they are telling.
Main page info
On the first page of the website, you will see a list of all coins and tokens that are available for purchase.
First, let me make a distinction between a coin and a token:
The coin is a cryptocurrency used as a mean of payment and usually hosted on its own native blockchain. Tokens have wider functionality and can represent basically any assets that are tradeable, from commodities to loyalty points to even other cryptocurrencies. Tokens are generally hosted on another blockchain, such as Ethereum or NEO.
CoinMarketCap features
On the top right section of the website, you can choose from 13 different languages (1) and 32 national currencies (2). There is also an option to switch to a night mode (3). On the left side, you can see the number of cryptocurrencies (4) and the number of markets — exchanges (5) on which they are traded.
Market Capitalization
Cryptocurrencies are listed by their market capitalization, so bitcoin is at the top because its market cap is the highest. It’s calculated by multiplying the price of a cryptocurrency with its circulating supply. That is one way to rank the relative size of a cryptocurrency.
Market cap is your first indicator of the potential return when investing in cryptocurrency. Lower market cap shows that cryptocurrency has more room to grow if it’s a young project which hasn’t been noticed by large investors yet. Investing in such a coin can make you more money, but the risks are higher. If you want to play safe, you should consider coins with higher market cap and volume.
Market Cap = Price × Circulating Supply
Circulating Supply
Circulating supply is the number of coins or tokens that have been issued so far and are currently circulating in the market. Don’t be confused with the max supply which is the maximum number of coins that will ever exist.
For example, we have more than 17,000,000 bitcoins circulating today, but the max supply is 21,000,000. That is the number of bitcoins that will be generated by the year 2140.
Price
The second variable in the market cap equation is the price. Price is calculated by drawing the average of all the prices from major exchanges weighted by volume. You can see the prices on different exchanges on the list below. This is the market section and it shows all the exchanges included in a particular cryptocurrency.
So, when you multiply the number of bitcoins that are circulating right now (17,210,850) with their current price ($6,347.32) you get the market capitalization ($109,242,772,373).
Furthermore, if you add the market cap of all cryptocurrencies you will get total market cap which is $203,492,353,057 (6). You can see that more than a half of the total market cap comes from the Bitcoin. You can read the same information in the section BTC dominance: 53.7% (7).
If you want a visual presentation you can click on Tools, then on Global chart and to scroll down. You will see the dominance of the major cryptocurrencies as a graph:
Circulating Supply
Also, cryptocurrencies can be sorted by other variables as well, you should just click on them. For example, if you click on Circulating Supply you’ll see a different order of cryptocurrencies.
As you can see, the larger the circulating supply, the less chance is for that cryptocurrency to have the higher price. You can’t expect from a cryptocurrency with billions of coins to have the same price as Bitcoin, which has only 17 million units. Just imagine what the market cap would be in that case.
To demonstrate that, let’s compare Litecoin and Cardano.
Market cap of Litecoin is $2,995,207,722 USD, and of Cardano is $2,416,516,061 USD, so the numbers are close enough to be comparable. The big difference is circulating supply. Litecoin has almost 58 million coins while Cardano has around 26 billion coins. Given that Cardano’s supply is much higher, the price for one coin is significantly smaller. Right now, you can trade with Cardano for less than 10 cents, but the price for one Litecoin is about $55 USD.
Furthermore, you should consider cryptocurrencies with the circulating supply closer to the max supply when investing. The closer it is, the less chance for newly issued coins is to take down the price. For example, XRP’s circulating supply is currently more than 39 billion, while total supply will be 100 billion. This means that only 39% of XRP has been issued so far, and the remaining 61% of coins might lower the price during the issuance.
Volume
Next thing you can do is to click on View All button. It will give you a list of all cryptocurrencies but without the graphs. Now it shows the percentage of the price change for all coins and tokens. For example, if you are looking for a cryptocurrency that performed best in the last hour you should just click on % 1h.
If you click again it will show you the cryptocurrencies which performed the worst. You can also check performance during a different period, such as 24h or 7 days.
There is similar information when you click on the button Gainers and Losers from the Trending menu. The difference is that it shows just cryptocurrencies with volume higher than $50,000 in the last 24h.
The volume gives you information about the amount of cryptocurrencies that are being traded on exchanges over a certain period. The less the volume, the more chance to manipulate the price. That is why they excluded all cryptocurrencies with less than $50,000 USD volume from the list.
Imagine a coin with almost no volume. With a few thousand bucks you could make it the biggest gainer ever, by trading back and forth. Low volume with the drastic price increase that does not make sense is not something you should pursue. There is a great chance the price isn’t going to hold at that level. And it certainly doesn’t reflect the true value of the project.
What’s next?
This was a brief explanation of the general data you can collect from CoinMarketCap. You can use it to start your own crypto analysis, but don’t use it as a financial advice. Data on CoinMarketCap is just a first thing you should look at, there are many more factors to include.
You should also gather as much information as you can about the project itself. Read the white paper, meet the development team and the community, check their competition, etc.
Given that there are also data on a specific cryptocurrency on CoinMarketCap, I would explain it in one of my next articles. You can visit my blog at Cryptpresso and sign up to receive next article in the mailbox.
