Understanding Crypto Market Basics

marketsHello Reader,

Firstly, let me apologise for the time since my last article, life has a habit of getting in the way. For my returning readers, you have my sincere thanks for continuing to check back during the temporary hiatus.

In my preceding articles, we have built an understanding of how crypto currency works and how you can get started using it. This article is going to take a more macro view of the crypto currency economy. We will begin with with the basics of commonly used terminology.

The Crypto Currency Market

One site has emerged as the de facto authority on the state of the crypto currency market. Reader, let me introduce you to your soon-to-be most visited website, CoinMarketCap.com. (Note: I’m sorry).

The site is a simple to follow one stop shop providing a list of all major crypto currencies and assets of any real value. It provides detailed information for each individual crypto along with aggregated information for the market as a whole.

But what on earth does it all mean?

Key terminology

Currently, all crypto currencies have some very similar attributes which determine their overall market value.

You will see both crypto currencies and crypto assets listed. A currency in this context is a crypto which can operate entirely independently and an asset (or token) is a crypto which operates on top of another crypto. For example, Golem is a token which operates on Ethereum.

Let’s take a look at the key overview information provided on the CMC homepage.

terminology

Rank #

The first column details the current rank of the crypto. In this case, we are looking at Bitcoin which is ranked 1st and so listed at the top. Rank is determined by overall market cap (see below).

Name

Hopefully you don’t need too much help with this one, this is the full name of the currency or asset, in this case, Bitcoin. Clicking the name will take you to the dedicated page for that asset.

Note that like the stock market, each crypto has an abbreviated ticker symbol as well as it’s full name. As an example, Bitcoin is often referred to by its ticker of BTC. You can use both the full name and ticker symbol to search CMC.

Market Cap

Short for Market Capitalisation, CMC’s namesake. Market capitalisation is a term borrowed from traditional company valuation. In the context of crypto currency, it is calculated as the number of units of the currency or asset, multiplied by the current market price of each unit. For example, if a crypto has one million units of circulating supply and a current market price of $1, it would have a market cap of $1 million.

Price

The price is the current market value of one unit of the crypto. In this case, I’ve handily took my screenshot just as one Bitcoin was worth $4,000.

But how is this calculated?

The price is the current volume weighted average value of one unit on the many different crypto currency exchanges monitored by CMC.

Generally speaking, the price is the balance between people wishing to sell and people wishing to buy. On average, market participants agree that this is a fair representation of the value of one unit.

If demand outstrips available supply, then the price will rise. Inversely, if demand is less than available supply, the price will fall.

The price changes constantly, unlike traditional stock markets which are only live during working hours, crypto markets run 24 hours a day, every day of the week. The crypto machine does not rest, expect no respite.

Circulating Supply

The circulating supply of a crypto asset is the number of units which have been released to the world at the current time. For Bitcoin, there are currently circa 16.5 million bitcoins in existence out of a maximum of 21 million that will ever be released. In the case of Bitcoin, coins are released every 10 minutes through the process known as mining which I covered here.

The current number of circulating units, the maximum potential supply and the method through which units are released is generally different for each crypto.

As a result, the basic price of a unit of one crypto is typically not comparable to the unit price of another which is why market cap is used as the comparison instead.

To illustrate, if there are 1m units of crypto A and 10m units of crypto B and both have a unit price of $1 then the collective market cap A is $1m and B is $10m.

If you have 1000 units of A and 1000 units of B, you own a larger overall percentage of the supply of A then you do of B. This is an important consideration in understanding the potential unit price of any given crypto. The price potential of a crypto with a low overall supply is likely to be much higher than another crypto with a high overall supply assuming all other attributes and market perception of the two are identical.

Clearly this is a gross over simplification of the market economics in play, but it outlines the importance of understanding the relative supply of different crypto currencies.

Volume (24h)

Volume in this context refers to the collective value in USD of the number of units of the asset which have been traded on those exchanges that CMC actively monitors over the last 24 hour period. Volume can often be used as an approximation of the current market popularity of an asset.

% Change (24h)

This is a percentage which reflects the change in price of one unit of the asset over the last 24 hour period. For example, if 24 hours ago an asset was worth $1.00 and is now worth $1.10, the change over that period is +10%.

Price Graph (7d)

The price graph is a handy miniture visualisation of how the price has changed over the last 24 hour period. Upward slopes represent price increases and downward slopes represent price decreases.

Overall Crypto Market Cap

At the top of the home page of CMC you can see the overall market cap of all currently measured crypto currencies combined. At present, this stands at $138 billion. This can serve as a useful indicator of the overall sentiment of the entire crypto currency economy. For example, several weeks ago, this reached an all time high in the region of $175 billion. This was followed by a harsh crash in the market from which the collective value has yet to recover.

BTC Dominance

Again, shown at the top of the home page of CMC, this refers to the market cap of Bitcoin as a percentage of the overall market cap of all crypto currencies combined. As $66.3Bn / $137.9Bn this means Bitcoin represents 48% of the overall crypto economy. This is considered a useful measure of Bitcoins continued importance in the context of the overall market.

Closing Thoughts

The above should arm you with a basic understanding of the main terminology used in the crypto markets.

Click on a few of your favourite crypto’s to be taken to their respective CMC pages. On each page you’ll find a wealth of useful resources in addition to the above:

  • relevant websites
  • blockchain explorers
  • message forums
  • price in BTC (and ETH for ERC20 crypto’s)
  • key attributes
  • detailed graphs with customisable time periods and scaling
  • a list of all monitored exchanges and current prices
  • relevant social links included twitter and reddit
  • javascript embed code for hosting live info on your site
  • historical price information

In a future article, we will take a look at how you can better exploit the wealth of data maintained by CMC through use of their application programming interface (API).

As ever, comments and questions are always welcome. I’d love to hear from those of your still reading after the recent article drought!

Until next time my friends…

If you’ve enjoyed this article, it would be my honour to have you as a regular reader. Subscribe and you won’t miss any future posts 🙂

Yours, X

Image: Wikimedia.org

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