At the time of writing, one Bitcoin (BTC
) is worth $49,294, while one Cardano (ADA
) is worth $0.8849. Many first-time investors make the mistake of thinking: Hey, ADA is cheaper than BTC, if ADA picks up steam, it might get close to BTC and also go over $20,000. However, this way of thinking is very illogical. Why? Market capitalization and total supply.
You get the market capitalization of a cryptocurrency when you multiply the price by the total number of coins/tokens in circulation. So it actually indicates the total value of a cryptocurrency. The market capitalization therefore also changes when the price changes, but also when more coins/tokens come on the market. On websites such as Coinmarketcap and Coingecko, cryptocurrencies are ranked by market capitalization and not by price. Bitcoin has been number 1 since the birth of these websites, but that is not only because Bitcoin has a high price.
Projects with a larger circulating supply are usually cheaper. BTC currently has a relatively low amount of coins in circulation, approximately 18.6 million, and although this amount is slowly increasing due to mining, the maximum supply is still relatively small at 21 million coins. ADA, on the other hand, currently has roughly 31 billion tokens in circulation.
Bitcoin's market cap currently stands at approximately $900 billion. ADA, with its current circulating supply, would have a market cap of $ 900 billion at a price of about $28.92. Meanwhile, Bitcoin is priced close to $ 50,000 at that same market cap due to a lower amount of coins in circulation.
If ADA could even hit a price of $ 2,000, the market cap would have been around $ 62 trillion. This is very unrealistic given that the total crypto market together now has a market cap of $ 1.5 trillion.
In general, cryptocurrencies with a smaller circulation can reach a higher price per coin than cryptocurrencies with a large circulation. Yearn.finance (YFI), for example, has a very small circulation of only 36,635. YFI has seen an increase from $900 in July 2020 to $40,000 in September 2020. There is a multitude of other factors involved in such price increases, but when a cryptocurrency has a relatively large circulating supply, the price per coin/token generally cannot be directly compared to the price of coins with a smaller circulating supply.
Crypto assets also often hold a maximum supply programmed into their code. The available supply of each asset is continuously growing through various forms of blockchain network validation - i.e. mining or staking - until it reaches its maximum supply. Prices can be diluted as additional coins or tokens enter the market as validators tend to sell their network support rewards to cover their costs.
Understanding the concept of market capitalization in relation to the price of a particular asset can be important so that you can more realistically assess the crypto market. You can look at the price of a single Bitcoin and consider it too expensive, immediately shifting your attention to something cheaper.
There is an abundance of information for investing in cryptocurrencies. They all vary in a use case, acceptance, profit potential and associated risks. However, viewing each asset in light of its specific market capitalization, price, and offers can help evaluate the market.
And to come back to the question posed in the title: "Could any token be worth $ 1 million one day?" The answer to this is no. It has largely to do with the number of tokens in circulation. For example, a Bitcoin or a Yearn.finance could potentially reach $ 1 million, but for a token like ADA, this would simply be impossible.
However, this does not mean that you can grab smaller returns on tokens with a larger circulating supply. So don't just focus on price, but also keep an eye on market capitalization (and of course other important factors).