When choosing the right cryptocurrency, most investors rely on ranking systems that can show you the best and worst coins to trade. In cryptocurrency ranking systems, different evaluation metrics are used to check the currencies’ performance, potential, and reliability. These metrics help investors and analysts measure a cryptocurrency’s strength compared to others. You can combine evaluation metrics to rank cryptocurrencies rather than relying on one alone. These provide investors with enough insights into their coins’ market performance. Let’s look at the evaluation metrics best applied to crypto ranking systems.
Market Capitalization
Market capitalization, also known as market cap, represents the total value of a cryptocurrency’s circulating supply. It is often calculated by multiplying the current price of a single cryptocurrency by the total number of coins in circulation.
Market cap is the total dollar value of all the shares of a company’s stock, or in the case of cryptocurrency, the coins that have been minted. It is an essential indicator used to measure and keep track of the market value of a cryptocurrency. Although the market cap is widely used as a metric, you should conduct more research before trading.
The higher a cryptocurrency’s market cap, the more it dominates the market. This is why it’s the most important indicator. Large-cap cryptocurrencies are often considered safe as they are less volatile than other coins. Mid-cap cryptocurrencies are more volatile but have a higher growth potential.
Finally, small-cap cryptocurrencies are highly volatile and risky investments. While some may experience short-term growth, they can easily crash. A crypto trading platform often offers a wide range of cryptocurrencies regardless of their market cap.
Trading Volume
Another evaluation metric is the trading volume, the total amount of cryptocurrency traded within a specific period. This is usually calculated within 24 hours. When a cryptocurrency has a high trading volume, it means there is active participation in the market and indicates liquidity.
Put simply, crypto coins with a high trading value have a lot of interest and confidence of investors in the market. For instance, if Bitcoin has a daily trading volume of 50,000 BTC, 50,000 bitcoins are traded in a day. High trading volume can also be an indicator of price momentum.
Price Performance
You can also pay attention to price performance metrics, which track a cryptocurrency’s historical price movements over a period. Some metrics used to check price performance include the price change percentage, price trends, and price volatility. The price change percentage checks how much the price changes over 24 hours. Volatility also refers to the rate at which the crypto price increases or decreases for a set of returns.
When a cryptocurrency has positive price performance metrics, it is a sign of growth potential and investment opportunities. This is especially true since the price of a cryptocurrency is dependent on the demand for the coin and the available supply.
Network Activity
Network activity is a crucial evaluation metric that can be used to rank cryptocurrencies. It looks at the level of activity that occurs on a particular cryptocurrency’s blockchain network. For one, the transaction volume, the number of transactions processed on the blockchain network, can be used to check network activity.
Another aspect is the network hash rate, which is the computational power used to secure and validate transactions on the network. A high hash rate equals a more secure network, making the crypto more trustworthy. You can also consider active addresses, network congestion, and block size.
Community Engagement
It’s also essential to look at community engagement to evaluate a cryptocurrency’s value. This is a way to measure long-term viability. To rank digital coins based on community, you can check the active users, social media activity, community forums, and if there are developer contributions.
A community is very important in the world of crypto, as many users rely on each other and share information. It is an ecosystem of users who actively participate in discussions and share insights. Essentially, the community constantly champions the coin.
Technology and Development
A cryptocurrency’s underlying technology and developer activity is crucial in understanding its future potential. Reliable technology can lead to future growth and widespread adoption. When assessing blockchain technology, metrics like scalability, consensus mechanisms, security features, and protocol upgrades exist.
All of these can help measure a cryptocurrency’s technological prowess. Thus, cryptocurrency valuation relies mostly on technological advancements and innovations in the market. Even when looking at Initial Coin Offerings (ICOs), the sophistication of technology will determine the coin’s valuation.
Adoption and Use Cases
The use cases of cryptocurrencies are extensive, and the more there are, the higher the coin’s value. Most have similar uses, such as enabling cross-border payments, facilitating DeFi apps, and creating NFTs.
When it has a lot of use cases, there is a high demand for the cryptocurrency. If the demand exceeds the supply, it will gain value and usefulness. Also, traders will refuse to sell because they want to use it, reducing its supply and increasing its value.
Navigating Cryptocurrency Ranking Systems
When looking at the comprehensive cryptocurrency ranking systems, it’s important to note that you shouldn’t rely on only one when choosing what to invest in. Instead, combine them and invest in those performing well based on these various metrics. Market capitalization is the most important but is not a comprehensive evaluation metric for choosing digital coins. This way, you can select suitable investment options from a properly informed position.