Investing in the cryptocurrency market is becoming increasingly one of the most popular investments of the 21th century.
Everyday, more and more people from around the world decide to invest their money in cryptocurrencies but the vast majority is unaware about which metrics to look at in order to make the right decision.
As a result they are condemned to lose their money due to the absence of knowledge about the factors that play a major role in the crypto market.
This post is dedicated to the illustration of the primary crypto metrics that every trader and investor has to know before putting his money in crypto.
The most common crypto metrics are the price, the circulating supply, the liquidity, the exchange volume and the market capitalization of each digital coin.
When an investor or trader studies and understands those metrics, he will be in a position to understand the bigger picture of the crypto market and thus he will increase his possibility to earn profit.
Of course, at this point it would be important to mention the fact that only by understanding those indicators do not guarantee success but if you want to succeed it is a necessity to study them.
So, let’s begin.
What metrics are used for crypto?
There are a plethora of metrics used by investors in order to help them get the right decision.
The very first that catches everybody’s attention is of course the price of each crypto.
But it is a gigantic mistake to depend only on the price to draw conclusions about a digital coin.
On the contrary, it would be wise to consider each one of the metrics and eventually combine them to make the best move.
Crypto circulating supply
When a company creates a certain amount of coins, only a part of them becomes available for circulation in public.
Those coins or tokens that are available for circulation in the market are considered to be the circulation supply of each coin.
This indicator is important to look at because it lets you know the exact quantity of coins that exist in a cryptocurrency.
This kind of information is able to give us hints about how easy its value can rise or fall down.
For example, XRP’s price is around 1 dollar with a total circulation supply of 48,12 billions of tokens.
So, by just looking at the circulation supply we can conclude that it is extremely difficult for the XRP price to rise very much, since its supply is so huge that it makes it very hard.
If you want to take a more comprehensive look at circulation supply and how it can help you make better investing decisions click here.
One more benefit we can have from circulating supply is that it can help us calculate the market cap.
What is cryptocurrency market cap
Market cap stands for market capitalization and is calculated if we multiply the current price with the current circulation supply.
Market cap indicates how much money (in dollars) do all the investors keep into a specific cryptocurrency.
Generally we can conclude certain things by looking at market cap:
- The bigger the market cap the more popular the coin is considered to be
- When compared to coins, the one with the bigger market cap will tend to be more stable and less liquid
- Also a a crypto with small market cap will considered to be riskier
Of course no one can promise that the bigger market cap will guarantee stability in the crypto world but it is one more decision factor to pay attention to, before taking any action.
You are recommended to click here in order to learn more about market cap.
Liquidity in cryptocurrency
Liquidity is a measure of how easy it is for an investor to get his money out of a cryptocurrency.
In essence, high liquidity means that there are enough buyers who are willing to buy a cryptocurrency.
When liquidity levels are high, it is very easy for sellers to sell their crypto at the current price.
When liquidity levels are low, sellers find it extremely difficult to sell their crypto and as a result they are forced into two situations:
- To sell their crypto at lower price from what is the actual/intrinsic value of crypto, or
- To wait until liquidity levels rise again to sell their crypto in the price they want
So, it is becoming pretty obvious that high liquidity levels are considered to be the ideal situation for crypto markets.
Learn more about it in this post which is dedicated to liquidity.
Crypto exchange volume
Last but not least, the exchange volume express the total amount of money exchanged for buying or selling crypto assets within 24 hours.
It is measured in dollars and in general we can tell:
The bigger the volume the more benefits the investors can reap off.
Exchange or trading volume concerns investors from two points of view:
The first one is the trading volume of the crypto exchange platform and the second is the trading volume of the cryptocurrency itself.
For more information you can click here to read the post which is dedicated to the crypto exchange volume.
What indicators are best for crypto trading?
It goes without saying that all the above indicators are extremely important for crypto trading, but are not the only factors traders should use.
The answer here may differ according to which trading strategy the trader chooses to use.
For example, for day trading or scalping in which the time frame is very short, the best indicators are those of technical analysis.
On the contrary, when the time frame is longer like in case of swing strategy, you should use fundamental analysis and take into consideration factors like the reputation of the company that owns the crypto.
Of course all those indicators are recommended to be used complementary with the primary crypto metrics mentioned above.
Final thoughts
There is no question that success in crypto investing relies heavily on accurate interpretation of the basic crypto metrics like the price, crypto circulating supply, market cap, liquidity and trading volume.
For that reason it is very important for investors to fully understand all those metrics in order to make the best decision possible for their investment.
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