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Predict Crypto Prices Using Market Cap
Making cryptocurrency price predictions is a form of dark art.
Unlike the discounted cashflow model for shares, there is no agreed method to value cryptocurrencies.
Different approaches have been proposed depending on the token use cases. We can make a simple classification as follows:
- Bitcoin. Use case: store of value asset that competes with gold.
- Altcoins. Use cases: dApps, DeFi, NFTs and so on. Real value is being created on top of quality Layer 1 solutions like Ethereum, Polkadot and Solana.
- Memecoins. No real use cases. Buy because you enjoy gambling. Some investors (read: gamblers and hardcore speculators) profit, but the vast majority lose money.
Depending on the use case, one may focus on different metrics, including: hash rate, network effect, number of dApps, TVL, and so on. One can spend days debating the merits of each metric and their relevance.
To keep things simple, investors typically use market capitalization as an easy-to-use guide for forecasting. Consider the current situation for ETH and ADA.
If you believe we’re at the beginning of the DeFi revolution, then you may feel ETH’s market cap is worth trillions. In that case, a $4000 ETH is a bargain.
If you believe mass adoption on Cardano will explode after their Smart Contracts launch, then you may feel ADA’s market cap will go into the trillions too. In that case, a $3 ADA is a bargain.
The process is to make an argument for a market cap forecast, which then determines the price of the token.
You should never directly make a price prediction without considering factors like the market cap. I have written an article about that here.
