In the world of cryptocurrencies, optimistic predictions are everywhere. From social media to investment forums, many dream of a future where their favorite assets will be worth a fortune. Or, to put it in the language of the sect (sorry, of the “community”), that they will go “to the moon.” Influencers and self-proclaimed “experts” claim with conviction that XRP will reach $500, or that DOGE will reach $10. Some even try to justify their predictions with lines, triangles and other (misused) tools of technical analysis, thus giving a touch of seriousness to their nonsense.
Dogecoin could surpass $10, X user hints. Source: DimaPotts36 – X (automatic translation by Google). But how many of these fortune tellers got their calculations right? Spoiler: very few. To understand why these projections are so unlikely (not to say impossible), first We need to talk about a fundamental concept: market capitalization.
What is market capitalization?
For those new to the financial world, market capitalization may sound intimidating, but it's actually quite simple to understand. In simple terms, it's the total value of a cryptocurrency (or any financial asset) in circulation. It's calculated by multiplying the current price of one unit of the cryptocurrency per total number of coins in circulation. So, if a coin is priced at $2 and there are 1 million coins in circulation, the market cap of that cryptocurrency is $2 million. It's that simple. Market cap is essential to understanding the true size and weight of an asset within the market. It's not enough to just look at the price of a cryptocurrency and assume that its value is what's on the screen. You have to multiply that value by the total number of coins in existence. That's why astronomical predictions often ignore this simple but necessary formula.
A classic: XRP at $500
For some reason, many influencers repeat like a mantra that XRP, Ripple's cryptocurrency, will reach $500 per unit.
The theory that XRP will hit $500 has many believers. Source: YouTube Is this possible? According to the information that anyone can read on CoinMarketCap, the circulation of XRP is 56 billion coins. Therefore, multiplying that number by 500 gives us the result that the market capitalization of XRP would be $28 trillion (million million) dollars. That means that XRP would have a market capitalization higher than that of gold! (Keep in mind that gold is the most valuable financial asset on the planet.
10 Most Valuable Financial Assets in the World. Source: CompaniesMarketCap. Does anyone really believe that XRP, a cryptocurrency whose true utility has never been very clear and which has been bearish for years, will be more valuable than the metal, which has historically been humanity’s main store of value? XRP was never “the cryptocurrency of the banks” as it was said years ago. It is also not used much as a store of value, nor as a means of payment… No one really knows what XRP is for. Why, then, would so much of the world’s money go into that investment, driving its price to $500? The logic behind these predictions seems to completely ignore market fundamentals, and is based more on wishful thinking than reality.
DOGE and the meme craze
The same goes for dogecoin (DOGE). The coin that started life as a joke and became a sensation, thanks in part to figures like Elon Musk, has its moments of glory, but when we hear that it could hit $10, we have to pause. For DOGE to reach that price, it would need a market cap of $1.4 trillion, which means surpassing bitcoin (BTC) at its current price. Bitcoin, with growing global adoption and a safe-haven narrative that has only gotten stronger over time, has a reason for being. Comparing its position to DOGE’s is like comparing a skyscraper to a wooden house. Yes, DOGE can be fun (although I personally fail to understand how), it has a loyal community, and it has accomplished amazing things, but that doesn’t make it the next Bitcoin.
Again, remember: It's the market cap, stupid!
The phrase that titles this article is inspired by a famous political slogan from the 90s: “It’s the economy, stupid.”It was popularized by James Carville, a strategist for Bill Clinton's 1992 presidential campaign. In the midst of an economic downturn, Carville wanted to focus the campaign team's attention on what really mattered to voters: the economy. His message was clear, direct, and effective. The phrase became a reminder that even though a lot may be going on in the political landscape, the key to winning was to focus on what directly affected people's pocketbooks. Similarly, in the world of cryptocurrency investments, many are distracted by the bright lights of outlandish predictions, not realizing that Market capitalization is the key factor to understand if those numbers are realistic or just smoke. Market capitalization gives us an idea of the relative size of an assetIt's a quick way to see how big or small a project is compared to others. When someone predicts that a cryptocurrency is going to multiply its value by 100 or 1,000, the first step should be to check whether the market capitalization would allow for such an increase. Otherwise, it's pure fantasy. This is where simple math comes into play. Even if a cryptocurrency has a low unit price right now, that doesn't mean it has the potential to go to the moon. Investors who don't understand this concept risk being seduced by empty promises.
Do your own research
In this scenario, influencers and “gurus” who predict astronomical prices have a great responsibility. Their followers, often new to the market, tend to believe them without questioning whether what they say is based on reality. And that is where things can get complicated. It is easy to talk about promises and dreams, but the harsh reality of the market is something else. The most important advice for any investor is: do your own research. Before investing in any project, do your research on its usage, adoption, and market cap. Don't get carried away by the hype or predictions of those who are only looking to increase their own profit. It's easy to get dazzled by giant numbers and promises of quick riches, but at the end of the day, Market capitalization is a compass which tells us whether a prediction makes sense or not. Without careful analysis, it is very easy to fall into the traps of excessive optimism. So the next time you hear that a cryptocurrency is going to go into the stratosphere, remember that what matters is market capitalization.
Disclaimer: The views and opinions expressed in this article belong to the author and do not necessarily reflect those of BitcoinDynamic. The author's opinion is for informational purposes only and does not constitute investment advice or financial advice under any circumstances.