Given the sporadic and often unpredictable nature of cryptocurrency, many new traders turn to social media for answers. And it’s no wonder why: With the meteoric rise of cryptocurrency in the last two years, new investors are wondering if they can make massive returns and buy a castle in the Bay Area.

People tend to take price predictions as gospel and make poor decisions based on even the most tempered recommendations. A big topic of cryptocurrency speculation at present is the future of Ethereum (ETH). Will Ethereum ever reach $10,000? My answer is simple: I don’t know, and I’m not going to tell you that it will. But what I will tell you is how to figure this out for yourself by understanding market capitalization.

Market capitalization goes a step beyond price to give more context to the total value of a cryptocurrency. You’ve likely heard that Ethereum is worth many billions of dollars (depending on the day). The way to calculate this figure is by looking at the circulating supply of ETH (as of this writing, roughly 97 million tokens) and multiplying it by the coin’s price (around $950). In the last week, the market capitalization of all circulating ETH is around $92 billion.

Even if cryptocurrencies seem unpredictable today, every asset must reach some value plateau. This normalization happens when the market has been saturated and every player has their say. Eventually, cryptocurrencies will reach this point. The reason market capitalization is useful is because it can allow us to make comparisons across different types of asset classes and to extrapolate future cryptocurrency prices.

Below is a short list of common assets by market capitalization:

  • Market Capitalization of Apple (Largest Business): $868 billion
  • Market Capitalization of Gold: $7.7 trillion
  • S&P 500 Market Capitalization: $23.9 trillion
  • Total Supply of Easily Accessible Money: $36.8 trillion
  • Total Supply of All Money (Broad Money): $90 trillion
  • Global Real Estate Value: $217 trillion
  • Estimated Derivatives Market Value: $1,200 trillion

The next question is easy: What is the appropriate place for cryptocurrency in the world? If you believe that each blockchain is going to be treated like an individual company (e.g., Microsoft or Apple), you might think that Ethereum has a market cap potential of about $1 trillion. In that case, the maximum price for Ethereum would peak at about $10,000 per ETH.

However, what if you believe that Ethereum is less like one individual business and more like a store of value, like gold? This gives us a potential market capitalization of roughly $10 trillion, leading us to believe that the price of ETH might rise as high as $100,000 per ETH. We might even go one step further and say that ETH is not like one asset, but an asset to replace all currency that exists. In that case, the market capitalization would have the potential of reaching $100 trillion, leading us to believe the price of ETH might rise as high as $1,000,000 per ETH.

Of course, these numbers are exorbitant and missing a lot of variables that would most certainly impact value. Ethereum has strong competition from Cardano, NEO, EOS and no less than 12 other competitors. New cryptocurrencies are being developed to make the current solutions obsolete — not to mention that every cryptocurrency still gets outshined by Bitcoin’s market dominance in the media and on exchanges. Even if the market cap for the entire industry is over $10 trillion, it’s possible that no single cryptocurrency will capture more than a fraction of the total valuation.

While analysis like this can be useful to put things in perspective, the truth is that cryptocurrency is still evolving. Market capitalization and these assets can act as flexible frameworks to help you understand the industry, but they must remain flexible. Keeping these potential paradigms in mind, without committing to any one philosophy is the most useful way to think about the industry. After all, as the technology progresses, new ways to use the blockchain will emerge, giving better insight into the real value of these cryptoassets.

ethereum With the meteoric rise of cryptocurrency in the last two years, new investors are looking to see massive returns. Photo: Pixabay