Many newbies get excited when they see the relatively inexpensive tokens listed on sites like Coinmarketcap. For example, they may see a coin like DOGE valued at $0.15, and imagine it skyrocketing to match Bitcoin's $85,000 price tag.

That would be an absurd appreciation of approximately 500,000x.

The Concept Of Market Cap

Instead of looking at the price of individual coins, what we should be noting is the project's market capitalization, a figure that can be calculated by multiplying the coin's market price by its circulating supply.

In the case of Dogecoin:

$0.1569 x 148,920,376,383 = roughly $23 billion.

With a market cap of approximately $23 billion, Dogecoin would have to increase by 73x to equal Bitcoin's $1.7 trillion dollar valuation. That would raise its token price to around $11 - an impressive return on investent.

In this hypothetical situation where both coins' valuations become equal, the discrepancy in price is explained by Bitcoin's much smaller circulating supply of 19,854,031.

That's all well and good, but how does this concept of market cap influence our investing decisions?

The Potential Of $100

Let's say you have a spare $100 to invest.

Investing that $100 into Bitcoin and hoping to become a millionaire is not only wishful thinking, it's virtually impossible (barring insane hyperinflation).

Realize that the market cap of Bitcoin would have to increase by 10,000x to turn your $100 into one million dollars. Such a massive move would raise Bitcoin's market cap to $17 quadrillion dollars, which is more than 138x of the world's current money supply.

Let's take a look at a more realistic example.

Hive, with a valuation of only $112 million dollars, would turn your $100 into a million dollars if its market cap were to increase 10,000x to $1.12 trillion. While definitely a pipe dream, it is within the realm of possibility.

Now consider putting your $100 into a token that has a market cap of just $1 million dollars. The buying pressure needed to make you a millionaire decreases, because the token's market cap would only have to increase to $10 billion, which isn't unheard of.

That said, a crucial aspect to consider whenever converting a cryptocurrency back into fiat is its liquidity.

The Critical Role Of Liquidity

Liquidity determines how easily a cryptocurrency can be sold for cash without affecting its price.

If a token's liquidity is low, a big sell order could quickly shrink a project's market cap. In fact, this just happened to Mantra (OM) last week when big sell orders were placed during low-liquidity hours, reducing the project's market cap from $5 billion to $500 million in a flash.

So although it may appear as though you have a million dollars worth of 'X' token in your portfolio, if you attempted to sell it into an illiquid market the token price would crash, revealing that perhaps you were never a fiat millionaire after all.

But what if fiat gains aren't the highest priority here?

Consider too that if you invest $100 into a small cap vs a large cap project, a greater share of the total token supply will be allocated to you (setting aside details such as circulating vs. total supply).

These tokens give you perks in the crypto realm including voting rights, usage credits (in the case of DePIN networks), reputation points, and gas for transactions, which may be more important than fiat in the future.

The Future Of Money

Although investing in cryptocurrency over the past decade or so had the potential to make you rich in fiat terms, we really need to take a step back and look at the bigger picture.

We wrote years ago that investing in crypto isn't just about getting rich in the traditional fiat currency. Rather, it's about preparing for a paradigm shift in finance.

As the financial system continues to buckle under the weight of its own debt, the elite's plan to reset the banking system and implement CBDCs is becoming increasingly clear with each day that passes.

If we start thinking of cryptocurrency as a substitute for the current financial system, rather than just something to be speculated on, the measuring stick by which we value these coins and tokens is going to change.

Today's emerging blockchains and tokens could very well be the pillars upon which decentralized communities and economies are built. The details of how this will all unfold is still up in the air, but progress continues unabated.

Until next time...

Of course, there are other factors that influence the success of a crypto project such as its level of innovation, censorship-resistance, community engagement, and initial token allocation.

That said, a cryptocurrency's market cap helps you to not only determine the potential for fiat gains, but the proportion of tokens you will receive that give you influence in the project's ecosystem.

Ultimately, today's dollar valuations don't really matter, because the debt-based financial system is set to be replaced by either CBDCs or decentralized cryptocurrencies, depending on the will of the people.

If you learned something new from this article, be sure to check out my other posts on crypto and finance here on the Hive blockchain. You can also follow me on InLeo for more frequent updates.

Further Reading

- Is the Dollar Value of Cryptocurrencies Clouding our Judgement?