Publish Date
December 11, 2024
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Stuck trying to make sense of cryptocurrency metrics like the volume-to-market-cap ratio? You’re not alone.
In this article, we’ll break down what a good volume-to-market-cap ratio looks like, how it works, and why it matters. You’ll also learn how to use this metric to make informed investment decisions, spot potential risks, and identify opportunities in the crypto market.
The volume-to-market-cap ratio measures how much a cryptocurrency is traded in a day compared to its total value. A good ratio is between 0.02 and 0.1, meaning that 2% to 10% of the cryptocurrency’s total market value is traded daily.
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💡 The above ratio shows that about 10.7% of Dogecoin's market value is traded daily, reflecting strong liquidity, active participation, and a healthy trading environment for investors.
While there’s no one-size-fits-all answer, here are some general benchmarks for understanding the volume-to-market-cap ratio:
A ratio of 10% or higher means the coin is heavily traded. This indicates strong interest from investors and high liquidity, making it easy to buy or sell without affecting the price much.
💡 Example: Bitcoin (BTC) often exhibits a high volume-to-market-cap ratio. For instance, with a market cap of approximately $1.9 trillion and a 24-hour trading volume around $148 billion, the ratio is about 0.078 (7.8%). This high ratio reflects Bitcoin's popularity and the ease with which it can be traded.
A ratio of 1% or lower shows that the coin is not being traded much relative to its total value. This can signal a lack of interest, which may make it harder to sell without significant price drops.
💡 Example: KuCoin Token (KCS) has shown a low volume-to-market-cap ratio. With a market cap of around $656 million and a 24-hour trading volume of about $504,000, the ratio is approximately 0.00077 (0.077%). This low ratio indicates limited trading activity, which could lead to challenges in buying or selling without impacting the price.
A ratio in this range is typically considered healthy. It means 2% to 10% of the coin’s market value is traded daily, reflecting decent trading activity and stable market conditions.
💡 Example: Ethereum (ETH) often maintains a balanced volume-to-market-cap ratio. With a market cap of about $500 billion and a 24-hour trading volume around $50 billion, the ratio is 0.1 (10%). This balanced ratio reflects Ethereum's stable trading environment and consistent investor interest.
A high volume-to-market-cap ratio indicates significant trading activity relative to a cryptocurrency's market value, which can provide valuable into:
A high volume-to-market-cap ratio often indicates that the cryptocurrency can be traded easily, with minimal impact on its price because there is significant buying and selling activity, ensuring that the market has enough participants to absorb large trades without causing drastic price fluctuations.
High ratios can be a reflection of strong market sentiment or hype because they indicate increased interest and activity from traders and investors, often driven by positive news, trends, or the perception of growth potential in the cryptocurrency.
While high ratios can indicate strong market activity, they can also signal short-term price volatility because rapid trading often results in sudden price movements, driven by speculative behavior or reactions to news and events, which can lead to sharp spikes or drops in value.
A high ratio may also result from specific events like new exchange listings, partnerships, or updates that temporarily increase trading activity because these events attract attention, encourage speculative trading, and often create a sense of urgency among investors to buy or sell the cryptocurrency.
A high ratio can be more meaningful when compared to other cryptocurrencies in similar categories (e.g., similar market caps or use cases) because it provides context to determine whether the trading activity reflects genuine market interest or is unusually high, helping investors assess a coin's performance relative to its peers and identify outliers driven by speculation or manipulation.
When the trading volume of a cryptocurrency surpasses its market capitalization, it’s an unusual scenario that can provide valuable insights into market behavior. While it’s not common, it can occur under specific conditions and often carries significant implications.
A situation where the 24-hour trading volume is higher than the market cap suggests:
Announcements like partnerships, listings on major exchanges, or regulatory updates can spark a surge in trading activity because they often generate excitement, attract new investors, increase visibility, and create a sense of urgency to buy or sell based on perceived future value or market opportunities.
💡 Example: Following the U.S. presidential election in November 2024, XRP's price and trading volume surged. Investors anticipated that the incoming administration might lead to favorable regulatory changes, prompting increased trading activity.
Traders may flock to a coin due to rumors or speculative interest, leading to a temporary spike in volume as they rush to capitalize on potential short-term price movements, driving increased buying and selling activity based on hype or fear of missing out.
💡 Example: After the U.S. presidential election, memecoins like PNUT saw significant value increases. Traders speculated on these tokens, leading to heightened trading volumes driven by hype rather than fundamental value.
Smaller or lesser-known cryptocurrencies are more prone to having trading volumes exceed their market caps because their lower value allows even modest investments or speculative trades to significantly impact trading activity, creating sudden bursts of volume that overshadow their market size.
💡 Example: In December 2024, Dogecoin’s trading volume increased by 76%, indicating a potential major price upswing. This surge was notable given Dogecoin's relatively low market cap compared to more established cryptocurrencies.
By analyzing both trading volume and market cap together (along with 30 others in one single glance — aka the Token Authenticity Score), you can gain insights into a cryptocurrency's current and future performance. Only available on MC² Finance.
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