Price vs. Market Cap – Which one should you pay more attention to?

Although it may be common knowledge for many investors, there still seems to be a misconception about the price of a coin compared to its market cap when analyzing projects, especially with crypto newbies. For this study, we will assume that “Project A and Project B” are of equal quality with respect to their fundamentals, team, etc.

Many people are reluctant to buy a project that has a price of, let’s say, $50.00/coin because they would prefer to invest in a different project that is $0.10/coin or less. They are attracted to coins that look “cheaper,” but this is not always the case once you dig a little deeper. It is misleading and deceiving looking at a coin that is only a couple of cents. I can see how this could go, “Hey, let’s buy this one for $0.10 vs. $50.00, we will get a lot more of them, and when it goes to $2.00/coin, we will be rich!!”. This type of analysis can severely affect your profits, and you may end up in tears if you do not consider the market cap when investing.

Here’s why!
First, let’s check out the elements we are working with:

Price/coin – the current price per coin/share of a particular project.
Circulating Supply – the number of coins in circulation (in wallets, exchanges, providing liquidity, etc.).
Market Capitalization – the total value of a project/asset with respect to the number of coins in circulation.
Diluted Market Capitalization – the total value of a project/asset if the entire supply of the coins were in circulation. Note that we will not be including diluted MC for this analysis as we are only examining the market value in real-time. However, it is essential to know what diluted MC is, especially when analyzing potential long-term investments (more on this in another article).

It is not possible to gauge the size of a project by price alone. Instead, you need to focus on the market cap, as this will provide you with a more precise overview of what the project/asset is worth on the market as a whole. In addition, there is little point in comparing various projects to their price per coin when they have different tokenomics, and they all do! Different tokenomics will have various max, total, and circulating supplies. Not to mention vesting periods and other forms of token lock-ups.

Note: Circulating Supply x Price/coin = Market Cap

So, let’s take an example. Shown below is a snapshot from CoinMarketCap, showing Polkadot and Dogecoin.

As we can see, there is a significant difference between $0.18 (DOGE) and $26.27 (DOT). At first glance, DOGE seems more attractive at $0.18; however, their market caps are both $25 billion.

What does this mean? It would take the same amount of money ($25b) to move DOT from $26.27 to $52.54 to move DOGE from $0.18 to $0.36. So, assuming there is equal buying pressure, DOGE will NOT increase in value any faster than DOT because it looks “cheaper” in price. You must grasp and understand this concept before investing in a project, as it could end up saving you money or increasing your return on investment (ROI).

I hope you found this helpful!

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