Predicting The Price Of Cryptocurrency
Number of Issuances and Total Market Price
If you want to have a long term success in the cryptocurrency market, you need two types of analytical skills. The ability to technically analyze the chart based on its fluctuations and fundamentally evaluating its value based on its white paper. These analytical skills will allow you to predict the price of given cryptocurrencies. If you can equip the ability to make judgments by yourself, you will be able to earn profit through investment and have a long term success even in such a volatile market. This article will attempt to help you learn one of many proxies that will prepare you for future price fluctuations.
In the cryptocurrency market, the total amount of coins issued and the overall market price can work as a great proxy to predict the future of the given coin. Similar to different countries’ currencies, a coin’s total issue volume is determined by the developing company at the project development stage and distributes it to the market through Private sale, ICO, IEO, and listing. Especially if you are planning to start a long-term investment without trading daily, you must check the issue volume. To better understand the importance of issue volume, we use Ripple (XRP) as an example that has a very high volume and high total market value.
When we enter Coinmarketcap.com, we can see the current ranking for different coins to find coins such as Bitcoin, Ripple, and Etherium to be in the top 3 rankings. However, for some reason, the price difference between these cryptocurrencies vary greatly from coin to coin. Bitcoin (BTC) is worth more than $8000 dollars while Ripple (XRP) is less than a dollar. What can they possibly have in common?
This website bases its rankings on the total market value of the different coins. To give a more detailed explanation, let’s check the total market value, daily trading volume, circulating supply, and the total issue volume of Ripple (XRP).
According to the picture above, the total market value of Ripple (XRP) is now close to $ 18 Billion. Ripple (XRP) is currently being traded at a price of $ 0.4. However, if you have been looking at the cryptocurrency market, you will remember the time when the price of Ripple (XRP) was over $3. The total market value of Ripple was over $ 127 Billion. The current total market value is almost seven times lower than that price. What is crucial to notice here is the correlation between the total market value and price.
Although it is not completely accurate, here is one formula that analysts use to predict the price of a cryptocurrency. We first know that the total market value of a given currency can be calculated by Price X Circulated Supply. From this, people derived that the formula for the price would be Total Market Price / Circulated Supply.
There are many online cryptocurrency analysts that predict the price Ripple (XRP) to go over $10 this year. Most of them use this formula to justify their predictions. However, when we consider the total issued volume, it is clear that such an analysis leads to misunderstanding.
For example, if you think that the total market price for Ripple (XRP) is going to exceed 100 Billion dollars, simply check the total issue volume. Unlike Bitcoin, Ripple has produced an enormous number of coins. If a coin already has a tremendous number of circulating supply or can be issued constantly, the price is never going to be scare and depreciate according to the basic economic laws of supply and demand. Any currency that is not scarce is going to have difficulty in attracting new investors in the long run.
Knowing this, if you plan to invest while learning from online analysts on Youtube or other platforms rather than learning how to conduct technical analysis, you should at least learn which information should be ignored based on these simple proxies that can predict the future price of the coins.
Although the total market cost, circulating supply, and total volume cannot accurately predict the prices of coins, given the volatility of the market, it can help you make simple guesses on what could happen in the future. Of course, you should not make an investment based on a single proxy. However, I hope this article has helped you how to take the first step in analyzing the cryptocurrency market.
Writer: Yunsoo Kim
Re-(E)Think, COO | RichValley, Inc. Director | Yale NUS ’23
