Crypto market cap: evaluating realistic price points

It may be tempting for new cryptocurrency investors to buy “cheap” coins because they assume a price of $0.03, for example, can turn them into future millionaires just by HODL-ing until it hits $100.

Unfortunately, this is a common misconception as that future price may never materialize. This perspective only considers the demand side of the equation and completely omits data about the supply side to realistically estimate future crypto prices.

This is where the concept of market capitalization can be valuable to understand.^[1] Here is one definition according to Coinbase:

…is the total dollar value of all the shares of a company’s stock — or, in the case of Bitcoin or another cryptocurrency, of all the coins that have been mined. In crypto, market cap is calculated by multiplying the total number of coins that have been mined by the price of a single coin at any given time.

In other words an investor can use market cap to gauge the relative value between many different cryptocurrencies.

So, how is this useful in evaluating future prices for a specific crypto? If…

Market Cap = Current Price * Circulating Supply

…then with a little math we can deduce the following:

Future Market Cap = (Desired Price * Current Market Cap) / Current Price

With this formula we can plug in the variables and calculate for a particular cryptocurrency to achieve a desired $X price point, based on existing market conditions it would need a $Y future market cap…assuming all else remains equal.

That was a lot of information so let’s use an example with Bitcoin. Back in January 1st, 2020 it had a closing price of $7,200.17 and a market capitalization of $130.581 billion. At the time, would you believe someone if they claimed Bitcoin would eventually surpass $40K?

Regardless of your answer we can calculate what the expected market cap should be at that price:

725.433 billion = ($40,000 * $130.581 billion) / $7,200.17

Thus, for Bitcoin to realize a price point of $40K it would need over $725 billion in market cap - more than 5x at the time. What was its market cap a year later when it finally broke $40K on January 9th, 2021?

$748.563 billion…off by -3%.

To make things interesting we can now extrapolate this and visualize the relationship between the desired price point and future market cap potential to see what is required for a $70K or even $100K Bitcoin price:

Want to see a Bitcoin price of $100K? Then expect it to be valued at a $1.9 trillion market cap which, quite frankly, may not be entirely unrealistic.

Let’s switch gears and apply this formula to other cryptocurrencies.

Cardano, a popular altcoin, has price predictions all over the place. We’ll use the two that I have seen quite frequently: $5 and $50.

Which one do you think is more realistic for Cardano?

$5 where it needs to 2.5x its current market cap? Or $50 where it not only needs to 25x but achieve $1.6 trillion in market cap value…completely surpassing that of Bitcoin’s current $893 billion at the time of this writing?^[2]