In addition to defining some of the basic terms that a first-time cryptocurrency investor will come across, this article will cover how cryptocurrencies are ranked by trading volume, how their values are calculated with market caps, and how a trader can use buy and sell orders to place an ask or a bid at an exchange.
INVESTMENT TERMS 101
- Trading volume
- Highs and lows
- Market capitalization
- Bitcoin’s market cap dominance
- Ask & bid
Trading volume determines what quantity and how often a cryptocurrency was traded during a given time period. It is the sum of how much all the trades of a cryptocurrency were worth in fiat money (or in another cryptocurrency) during that period (which may be a day, a week, a month, etc.). It can also be expressed as a percentage, displaying how much of the entire market the trades of a particular currency represented in a chosen period.
Highs and lows
A currency is at a high when its value is higher than ever during a particular time period, and at a low when its value is at its lowest during a different period. Highs and lows can represent the value of just one currency, or compare it to the value of other currencies. Daily highs and lows are often displayed on exchanges and crypto ranking sites.
All-time high (ATH) and all-time low (ATL) are the highest and the lowest values respectively for which one unit of a cryptocurrency has been exchanged. The ATL of some cryptocurrencies is their price at the time of inception or initial coin offering (ICO), while many experience falls from the initial price later (when introduced at an exchange, for instance).
Bitcoin first reached a notable long-term high in 2014, but the first high that really echoed in the mainstream was in December 2017, when once coin could be traded for as much as 20,089 USD. Skeptics believed that was the all-time high. However, in 2020, that record was broken by some margin, with bitcoin steadily growing ever since and now trading for over 50,000 USD (as of writing). It’s a matter of heated speculation when another long-term high will be set or what bitcoin’s ultimate all-time high is.
Market capitalization (market cap)
Market capitalization is a common way of ranking cryptocurrencies by determining the total value of all the coins or tokens in circulation. It is calculated by taking the current price for a single unit and multiplying it by the total number of units across all markets.
Market cap = Price of 1 coin × Circulating supply
Coinmarketcap provides a go-to list of cryptocurrencies arranged by market cap. It takes the average price of a coin across numerous markets and multiplies it by the number of coins in circulation. To make the figure as accurate as possible, the coins that have verifiably been “burned” (the coins that are no longer in operation) are excluded.
Bitcoin’s market cap dominance
As the first cryptocurrency, Bitcoin has always been at the fore, both in terms of popularity and value. Bitcoin is so widespread that it, alone, represents about half of the total market cap of all cryptocurrencies. Bitcoin’s market cap dominance is measured by what percentage of the crypto market Bitcoin represents, with its dominance nowadays surpassing well over 50%.
Ask and bid
When selling crypto at an exchange, the seller sets the minimum price at which they are willing to sell their coins. This price is known as the ask.
Say that Anne wants to sell 1 BTC for at least 49,000 USD. She would place a sell order at an exchange. The exchange will scan their order book, where all the orders are published, and match Anne with a suitable buyer.
The other side of this equation is the bid, or the highest price that a buyer is willing to pay for a coin.
Say that Tom is looking to buy 1 BTC, but he does not want to spend more than 50,000 USD for it. He places a buy order and sets his maximum price at 50,000 USD. When that order is published in the order book, Anne is a candidate with whom Tom could be matched. Depending on the trading engine, the order can be executed at anywhere between 49,000 and 50,000 USD, satisfying the requirements of both traders.
The transaction above is purely fictional. There will rarely be such drastic discrepancies between the ask and the bid. But the fact remains that a sell order will never execute below the set price, nor will a buy order execute above it.
Get access to the biggest cryptocurrencies by market cap
If you want to trade crypto, whether dealing in the market-cap-dominant Bitcoin or any other popular coin or token, such as ETH, BCH or LTC, you will need to register an account at an exchange that supports them.
Bitstamp, the world’s longest-running cryptocurrency exchange, offers several types of orders, allowing traders to take advantage of the best prices in the order book. Create a Bitstamp account to start trading today.