Market Cap & Market Dominance Analysis
Making cryptocurrency price predictions is a form of dark art.
Unlike the discounted cashflow model for equities/shares, there’s no consensus on how to value cryptocurrencies.
Different use cases and classes of cryptocurrencies call for different approaches.
Broadly speaking, cryptocurrencies can be classified as:
- Bitcoin. Use case: store of value asset that competes with gold.
- Altcoins. Use cases: smart contracts, dApps, DeFi, NFTs and so on.
- Memecoins. No real fundamentals. Gambling and speculation.
Common methods to value crypto include: hash rate, network effect, number of dApps, developer activity, TVL, Metcalfe’s Law and so on.
However, current crypto prices are ultimately influenced by the balance between market buy-side and sell-side pressure. Meanwhile, future price projections heavily rely on narratives and the ability of crypto teams to execute on their promises. External factors such as central bank interest rates also play a significant role, as I wrote about here.
To keep things simple, investors use market capitalisation as a guide for valuation and forecasting.
WEN’s current market cap is around $36 million, making it a small cap altcoin. If this valuation sounds cheap to you, then it could be a buy signal. If it’s expensive, it might be a time to get out.
Crypto investors also commonly use ratios to assess the altcoin project against the blockchain on which the project sits.
In the case of WEN, a memecoin on the Solana blockchain, the $WEN/$SOL ratio and WEN/SOL relative market dominance are techniques to evaluate when WEN is overbought and oversold.
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