Price, volume, and market cap are undoubtedly the most viewed metrics by retail investors in the space. While on-chain metrics have recently become popular, market cap and volume are universal indicators for any investable asset class. There are a few nuances to observing Bitcoin price, market cap, and volume, so let’s dig into that.
Market cap is a very popular metrics irrespective of the asset class. It is the most common indicator of value growth for stocks and commodities. Viewing the cryptocurrency market cap with the same perception is a little misleading. This is simply because the mechanics of issuance are completely different.
With a stock like Apple or Google, market cap movements are solely due to an increase or decrease in the underlying value of the stock (company). Most of the time, these companies do not increase the number of shares issued on a frequent basis.
Bitcoin, however, has a market cap increase every 10 minutes as miners are rewarded freshly minted BTC as a block reward. As a result, the market cap is continuously rising and leads some to believe that the market is continuously adding value to Bitcoin. In reality, market cap changes aren’t the best way to look at a change in value for BTC. Using Bitcoin price for this measure is much more accurate, as it gives you an idea as to how the market values each BTC rather than the value of all minted BTC in existence.
Market cap is one of the most misunderstood metrics in cryptocurrency because of the difference in interpreting it from traditional markets. Even though it isn’t a major difference to the naked eye, it does skew network valuations upward.
This is by far the most important metric in the market, especially because Bitcoin is primarily a payment remittance network. Volume is the amount of BTC changing hands in a stipulated time period. It can be recorded as the trading volume on exchanges or the total volume of transactions over the network.
Volume is a critical indicator for traders and HODLers for different reasons. In trading, volume precedes price and is a primary indicator of market sentiment. Keeping a close eye on volume is possibly the most important aspect of trading without bias. For HODLers, transaction volume is an indicator of network usage and can be used as a signal for an incoming surge of new users.
Not many people actually care about volume as the focus is always on price and market cap. However, volume alone is a more useful indicator of sentiment than market cap or price could ever be. If you can understand what the volume is signaling, you can predict future market movements with a sharp degree of accuracy.
New age indicator NVT, which is essentially on-chain metrics, uses market cap divided by price to figure out if the market is overvalued or undervalued compared to historical data. Even the newest innovations in financial data science utilize market cap and volume, which solidifies their utility proposition for prediction.