Understanding the Prices of Cryptocurrencies

The price of an individual coin of a cryptocurrency can be a little tricky to understand at first. As of Feb 7, Bitcoin (BTC) is trading at $38,650, while Ethereum (ETH) is at $1,620, and Dogecoin (DOGE) is at $0.059. Can Dogecoin go up to $1, $10, or even $40,000 like Bitcoin? Let’s explore what is reasonable and how to build intuition for coin prices.

Crucial to understanding the price of a cryptocurrency coin is its market cap — the total value of all the coins:

market cap = coinPrice × totalCoins

The market cap sets the actual value of the coin. Different cryptocurrencies can have vastly different numbers of total coins, and this needs to be taken into account when understanding their prices.

Let’s explore a few different popular cryptocurrencies:

Bitcoin (BTC)

The original cryptocurrency.

• $38,650 / coin
• $650 B market cap

Ethereum (ETH)

Cryptocurrency with smart contracts.

• $1,620 / coin
• $120 B market cap

Litecoin (LTC)

Early bitcoin spinoff.

• $150 / coin
• $9 B market cap

Dogecoin (DOGE)

Memecoin. 🚀🚀🚀

• $0.059/ coin
• $7 B market cap

Stellar Lumens (XLM)

Crypto with support for digital representation of any currency.

• $0.38 / coin
• $75 M market cap

Algorand (ALGO)

First open source, permissionless, pure proof-of-stake blockchain.

• $0.77 / coin
• $1 M market cap

If we simply plot the coin prices as a function of time, we see something that is not too helpful:

Bitcoin dominates the price per coin chart. It is difficult to even see the other coins. One may mistakenly think that the other coins may have potential to skyrocket in price to BTC values. That intuition is incorrect. The correct approach to understanding prices is to re-normalize them by their market cap. It also helps to plot the y-axis (price) on a logarithmic scale to be able to compare relative values (ratios). If we do this …

Voila! We see something very interesting. All the cryptocurrency prices roughly follow each other, with a relative offset that is equal to the the relative size of their market caps. Bitcoin is the dominant cryptocurrency, followed by Ethereum.

It can also be interesting to plot cryptocurrency market caps relative to Bitcoin, to see whether the other altcoins are catching up are falling behind:

We can see, for example, that Ethereum came close to catching up to Bitcoin in 2017. The altcoins, on the whole, all follow similar trends.

So, could DOGE reach $1 any time soon? That would mean its market cap becomes ~20% of BTC. It’s possible but unlikely, since it would be a ×16 times increase in the market cap. Could it reach $10? Then it would be suddenly twice as big at Bitcoin — highly unlikely. $40,000? That’s out of the question — DOGE would be over $20 quadrillion market cap.

To understand the prices of cryptocurrencies, look at the market cap.