No matter what be the nature of investment, it is all about generating return on investment. Return on investment or return on costs is a ratio between net income and investment. A high ROI means the investment’s gains compare favorably to its cost. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments.
ROI is the metric, which is used by cryptocurrency traders to measure the performance and the efficacy of their crypto investment. It is also used as a tool to compare the performance of multiple cryptocurrency investments in a portfolio.
Investors who are planning to invest in a cryptocurrency project through a token sale will want to study the ROI or the projected ROI for a particular project.
Anyone who decides to invest in cryptocurrencies would want to check the factors, which improve the chances for best ROI.
- Market capitalization points to how much a company is worth per market standards. It is the total market value of all the crypto holdings. To calculate a token’s market cap, multiply the number of tokens by the current market value of one token for a point in time. Market capitalization is the first thing to consider in their terms. By custom, the aggregate market value of a cryptocurrency is represented in dollars.
- The 24-hour trade volume of a particular token, whether Bitcoin, Ethereum, Solana, Cardano, or anything to name is very important. This is about the total value of tokens traded in the past 24 hours. This gives an insight in to the liquidity of the crypto market. The higher the volume of the cryptocurrency transactions in 24 hours, the better is the liquidity. The cryptocurrency market runs 365 x 24 x 7. The total amount of cryptocurrency traded during a given 24-hour time frame represents the possible buy and sell orders which has happened in 24 hours.
- High volume is important, because high volume permits easier inter-conversion between different types of cryptocurrencies, fiat money and other kinds of assets. A good cryptocurrency exchange will facilitate significant numbers of pairing of the tokens at significant volumes, thus making it easy for traders to buy and sell crypto.
- There will be times when the trading volume of cryptocurrency is higher than the overall market cap of the token – this is just indicative of increased buying and selling activity. This is also indicative of lot of short-term trades happening.
- When there are higher numbers of transactions comprising of buying and selling, there is definitely a catalyst making it possible. This catalyst can be borrowing and lending activities in DeFi – Liquidity Pools, increased activity in P2E Games, increased buying and selling of NFTs, enterprise adoption, crowdfunding, point of sale transactions, increased developer activity and more related to adoption. This is one reason for why the price kicks up with a buying spree when there is a very attractive project in a blockchain ecosystem – if the project is usable and attracts more users – this contributes to increased numbers of transaction – contributing to increased volume.
- A good volume to market cap ratio of 3.0 or higher is considered excellent. The volume of any cryptoasset is the total spot trading volume reported by all exchanges over the last 24 hours for that cryptoasset. The volume of transaction will increase as the spot price of the token increases. This is because new investors flee in while creating a frenzy to buy.
- High trading volume increases the profile of a particular cryptocurrency exchange and brings in new investors. This is one area where cryptocurrency exchanges are blamed to be manipulating trading volumes (high trading volume scams). The exchanges project a much higher volume than what they transact to draw in new traders/investors to their exchange – thus increasing their customer base.
- Investors when deciding on which crypto to buy classify tokens in terms of high trading volume and low trading volume. It is only with tokens with substantial liquidity, investors will be able to sell and exit any time or buy in any time in the trading process. When there is insufficient trading volume buying and selling at desired time frames and price points can be challenging.
- In a highly volatile cryptocurrency market, high trading volume and low trading volumes are important representations of liquidity and trad-ability for an investor.
Thus, trading volume versus market cap metrics are important in determining a probable ROI for your investment in the cryptocurrency space. There are several other factors to consider as well. To kick start these factors are those that a beginner needs to understand.
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