According to Bloomberg News, crypto’s total market capitalization just rose above $3 trillion. That’s a lot of money, and it’s a very big number. So much that it needs some sort of justification or context in order to mean something. Let’s take Apple Inc. and Microsoft Corp. for a second. Both the companies hold market capitalizations that have only recently gone above $2.5 trillion. That makes the whole crypto sector worth more than the world’s biggest tech firms by 20 percent.
It’s not an easy task to assess the value of cryptocurrencies, but there are some approaches. The first is to treat it like you would a tech company. After all, there are numerous crypto ideas that are driving innovation in different sectors. Crypto-based technology is also proving immensely helpful to many. One example is that of smart contracts and peer-to-peer financial services. These are much better and cheaper than centralized finance services. That’s because crypto-based technology makes them faster.
A major question to ask about is how the value crypto can provide to end-users compares to that of tech companies. Experts can agree that crypto offers much greater potential than that of any one single company existing today. However, the risk remains high. One example is how crypto may never exactly help investors rake in impressive profits, while Microsoft and Apple can.
Let’s not forget that these companies are old, recognizable, and have a reputation. They have employees and hold assets, and have a history of forming various new businesses. But if we compare it to crypto, there’s quite a disparity. Even if crypto climbs a stable growth curve, the value will be captured by the number of developers and users as opposed to the number of token holders. So what will happen if regulators force investors to take their profits in the form of crypto rather than fiat currency?
If we go along with this approach, you can’t argue that you’ll need to be highly optimistic to appreciate crypto’s current prices. As of yet, the ratio of price-to-earnings for the S&P 500 Index is nearing an all-time-highs. Similarly, tech firm valuations are very high and crypto is selling like hotcakes.
While crypto prices have been rising, there doesn’t seem to be a reason behind it. This means there has been no recent breakthrough to warrant a rise in prices. This can make the market highly volatile because there’s nothing to cement crypto’s claim to such high prices. So unless you’re sure that the crypto sector has brought about a highly-awaited change, it’s likely that prices can drop back down. Although it doesn’t necessarily mean a crash of the market, simply low rates of return.