Seeing comments like “DOGE to $100” on forums or youtube comments makes one realize that sometimes, people genuinely do not have a solid understanding of the market cap of a particular asset.
Today we explore what a market cap is, why it is essential to understand how it affects prices, and explains why Shiba Inu, Dogelon Mars, SafeMoon, or any of your favorite meme coins will probably never reach $1.
Ok, so… what is market capitalization?
To put it simply, “market cap” is the amount of money invested collectively in a particular asset. It is a term commonly used in stocks and commodities for years and crossed over to crypto naturally.
We can calculate it by multiplying the coin’s price by the total amount of coins in existence. For example, it is well known that Bitcoin has a fixed supply of 21 million coins. The current price of about 20k per 1 BTC would imply a 420 billion market cap if all 21 were mined. ADA, the native currency of the Cardano ecosystem, has about 2143 times as much total supply (45 billion coins).
That means it would only take ADA to reach about 13 dollars for both of them to have an equal market cap.
This has been a topic of discussion for many years. It is worth noting that no coin has ever, in the entire history of cryptocurrencies, surpassed Bitcoin in its market cap, and many thus view it as “the barrier” that dictates how far a certain altcoin could rise. Some propose that Ethereum will eventually gather enough momentum and take the number one spot in an event termed “The Flippening.”
When deciding whether or not to invest in a coin, its price alone should be the least of your concerns. It would be much wiser to ignore the current price of the coin you want to invest in altogether and look at its market cap.
It is a fallacy to assume that just because a particular coin has a low price in terms of dollar amount, it also has, for some reason, a higher potential for growth.
So to conclude, the notion of your favorite meme coin skyrocketing to $1 and making you a millionaire is improbable. If, for example, Shiba Inu would by some miracle reach $1, that would mean its market cap is now 6.5 trillion.
To put this into perspective, this is 3x more than the entirety of all crypto coins.