Why Are Some Cryptocurrencies Worth $40,000 and Others $0.40?

At the time of publication, one Bitcoin (BTC) is worth about $70,247, while one Dogecoin (DOGE) is valued at about $0.146. If you are new to the world of cryptocurrencies, it might seem logical to you that Dogecoin, being much cheaper, could catch up to Bitcoin in price and grow to tens of thousands of dollars. However, this way of thinking is not quite correct. Why? Because you need to consider the market capitalization and supply of the asset.

What is market capitalization?

Market capitalization is the total value of all circulating coins of a given asset. It changes depending on the rise and fall in the value of those coins. Cryptocurrency metrics websites such as CoinMarketCap rank each cryptocurrency by market capitalization. Bitcoin is the leader in this category, with a market capitalization of about $879 billion at the time of publication.

Market capitalization takes into account the circulating supply of each asset. Circulating supply is the amount of a given asset that is freely traded in the market. To calculate market capitalization, you need to multiply the circulating supply by the current price of the asset.

For example, if a cryptocurrency has a low circulating supply, it can achieve a high price per unit. On the other hand, cryptocurrencies with a large number of coins in circulation usually have a lower unit price. It is important to understand that market capitalization is a better reflection of the overall value of an asset in the market than its unit price.

Circulating supply and its impact

Assets with a large circulating supply often trade at lower prices in dollar terms per coin or token. BTC currently has a relatively low circulating supply of about 18.6 million coins, and while this number is slowly increasing due to mining, its maximum supply is still relatively small at 21 million coins. Meanwhile, Dogecoin has a circulating supply of about 128.3 billion coins, according to CoinMarketCap.

If we consider DOGE's circulating supply, its market capitalization reaches about $800 billion if each coin is worth about $6.23. Meanwhile, Bitcoin is worth more than $70,000 per coin for the same market capitalization due to its smaller circulating supply.

Thus, the more coins in circulation, the more pressure there is on their price because they are easier to acquire. For example, if the demand for Dogecoin suddenly increases, the price may also increase, but achieving the same price levels as Bitcoin would require much more effort and investment due to the sheer number of coins in circulation.

Cryptocurrency issuance

Cryptocurrency issuance is the process of issuing new coins or tokens. In 2017, when many new investors entered the cryptocurrency market, some of them bought the pricey Bitcoin, while others turned their attention to cheaper altcoins such as Ripple (XRP). When Bitcoin hit an all-time high of $20,000, XRP also rose significantly in value to $3.8. However, investors failed to take into account XRP's huge issue of 100 billion tokens.

If XRP's issuance was comparable to Bitcoin's issuance (21 million), XRP's price would then be around $18,000, almost like BTC. This shows that the amount of issuance and the number of coins in circulation significantly affect the price of a cryptocurrency. The larger the issuance, the harder it is to achieve a high price per unit because the total supply of coins is much higher.

Issuance also affects the pressure on the price of an asset. The more new coins created and put into circulation, the greater the pressure on the price as supply increases. This is one reason why tools that reduce the number of coins in circulation, such as stacking, can help maintain or increase the price of an asset by encouraging holders to hold coins for passive income instead of selling them on the market.

Applications and features

The practical application of cryptocurrency significantly affects its value. The wider the use of a token, the higher the demand for it. For example, the token of the Binance exchange (BNB) rose significantly in value after the exchange announced the launch of an initial token offering (IEO) platform. To participate in the IEO, users had to hold BNB tokens, which increased demand for them and, consequently, the price. Since the launch of the IEO, the BNB exchange rate started to rise and reached a high of $39.6.

IEO also plays an important role in reducing the number of coins in circulation. Users willing to participate in IEO hold tokens, which temporarily reduces their supply in the market and contributes to the price increase. Binance also conducts quarterly burns of its tokens, which reduces their overall supply and contributes to the price.

Another example is Ethereum, which is used for smart contracts and decentralized applications. Stacking in Ethereum 2.0 allows users to earn passive income for storing ETH, which reduces the number of coins in circulation and maintains or increases the price of the asset.

Thus, the uses and features of a cryptocurrency play a key role in determining its value. The more uses and real-world applications a token has, the higher the demand for it, which contributes to the growth of its price.

Correlation and news

For most cryptocurrencies, an important factor affecting the price is their correlation with Bitcoin quotes. Practice shows that when the price of Bitcoin rises or falls, it affects the rate of all altcoins. For example, according to a study conducted by Binance at the beginning of the year, the price of Ethereum, Litecoin, EOS, XRP, Bitcoin Cash and BNB in 70% of cases repeated the movement of Bitcoin quotes. Atom, Link and Tezos tokens showed the least dependence on BTC - 24-28%.

The news background also strongly affects the price of cryptocurrencies. Sometimes a high-profile news story can rapidly change the price of Bitcoin and, consequently, affect the entire market. For example, in late October, Chinese President Xi Jinping said that blockchain is one of the key technologies for the country's development. Within a day after that, Bitcoin went from $7,000 to $10,000.

Another example is the story of the BAT token. This cryptocurrency is part of the Brave browser ecosystem. On June 6, a user discovered that a referral link leading to well-known cryptocurrency exchanges was automatically inserted in his search bar. When this story became public, the price of the BAT token fell from $0.25 to $0.23, but soon recovered to its previous level.

Заключение

Understanding the factors affecting the value of cryptocurrencies allows you to more objectively assess their potential and make informed investment decisions. Market capitalization, circulating supply, issuance, usage, product availability and active users, as well as the impact of news background and correlation with Bitcoin - all these aspects play an important role in shaping the price of crypto assets.

For example, cryptocurrencies with low circulating supply, such as Bitcoin, have the potential to achieve a high price per unit. At the same time, tokens with high supply, like Dogecoin, require significant investment to reach similar price levels. The use of cryptocurrency, as in the case of Binance Coin (BNB) and Enjin, also contributes to its value by attracting users and increasing demand.

Kauri Finance provides users with a wide range of cryptocurrency management tools, including non-custodial wallets and corporate cards, making it safe and convenient to manage digital assets. Kauri Academy plays a key role in educating users, helping them better understand the cryptocurrency market and effectively utilize blockchain technology.