Cryptocurrencies are a new asset class with transformative potential, but the space is still young and volatile. Thoughtfully researching projects before investing can help minimize risks, but it’s important to keep in mind that a single issue in the deeply interconnected crypto industry can have wide-ranging impacts on prices and value. Unlike stocks that are linked to companies and subject to well-established financial reporting requirements, cryptocurrency investments are often tied to technological projects that can be difficult to assess.
Cryptocurrency prices are determined by the fundamental principle of supply and demand. When demand for a coin like Bitcoin increases while its supply remains limited, the price tends to rise. However, the relationship between demand and supply can also be influenced by other factors, such as investor interest or market speculation.
When evaluating cryptocurrencies, it’s critical to understand their market cap and trading volume. The former reflects the total market value of a given coin, while the latter refers to the amount of coins that have been traded over a specified period, usually 24 hours. High trading volumes suggest active market activity and liquidity, while low volumes indicate less trading interest in a particular cryptocurrency.
Cryptocurrency market caps are calculated by multiplying a coin’s price by its circulating supply, which excludes coins held by the project team or reserved for future use. It’s also important to know if a cryptocurrency has a fixed or unlimited supply, as this can have a significant impact on its long-term value.