It is becoming a popular trend to buy cheap crypto coins, much like penny stocks. However, stocks and cryptos are two very different things.
They are not identical just because they borrow terms such as stock price, crypto price, and market cap from stock market.
This is why many people lose sight of the correlation between market cap, supply and price.
This is why I am sharing my thoughts in this article, which I hope will prove helpful for you when analyzing a coin/token prior to investing in it.
What does Market Cap in Crypto Mean?
Market cap is a general definition in crypto that refers to the total amount of money that has been invested in a particular coin.
If Coin A has a market capital of 1 billion dollars, then it is assumed that this is the amount invested.
This is a common misconception.
Are you aware that 250 billion dollars were invested into Bitcoin when it reached $250 billion market capital?
No.
Market cap increases. This means that every coin’s price goes up. One must understand that there is no new money for coins in your pocket or any other person’s pockets.
This formula calculates a coin’s market capital.
Market Cap = Coin Price x Circulating Supply
And when we rearrange the formula to achieve this:
Coin Price = Market Cap/Circulating Supply
It is possible that Coin A and Coin B’s prices will fluctuate depending on the market cap.
Let’s say, for example, that Coin A has a market capital of 100 million and Coin B has a circulating supply of 100 million coins. Coin A’s is 10 million coins, while Coin B’s is 100 million.
Apply the following formula:
The price of Coin A would be = ($ 100,000,000/10,000,000)= $10
&
The price of Coin B would be = ($ 100,000,000/100,000,000)= $1
You can see that Coin B is starting to look cheap, but it’s important to also understand the current coin supply.
The answer to the question of which coin is rarer is “the coin with limited supply”.
According to me, a more expensive coin may be cheaper because it has a smaller supply, while a less costly coin might be more expensive due to its limited supply.
Let’s look at this correlation with CoinMarkeCap
Price Wise List
Below is the price list for top 10 cryptocurrency and their respective circulating supplies. Below is a list of the top 10 currencies in alphabetical order by their circulating supply.
It is a common observation that the price per token drops as the circulating supply increases.
It is possible to only use certain places because of other factors, such as market confidence and network effect.
Circulating Supply Wise
Take a look at Tron or DASH in these two images. Both companies have market caps close to the same at 1.6 billion and 1.8 million dollars, respectively.
It is important to remember that Tron’s current supply is approximately 8000 times greater than DASH’s, which is 8.3 million coins. Divide the DASH price by 8000 times to get Tron’s per-coin value.
What does all this mean?
If we take into account other factors, such as market cap and coin supply fluctuations, we can then draw real insights. Because they are valued similarly, 1 DASH and 8000 TRX will be the same.
Another argument is that 8000 TRX has a high chance of appreciation between 10% and 50% starting at $0.024, while DASH may not appreciate between 10% and 50% as easily.
Analyzing in this way is also incorrect. DASH will only need a fraction of the money required to appreciate in value compared to TRX if market sentiments favor it. DASH has a much lower circulating supply than TRX. DASH is a rare supply, so the market forces for demand and supply will be stronger.
Conclusion
The original formulas for price and market capital that I mentioned are a fallacy. It is impossible to prove that the formula always gives the correct picture.
To double the token price, you only need 1 million tokens and a $1 million market cap. It’s a myth. It could happen with $10,000, or even $2 million.
The market cap is the sum of all money invested in a coin.
Price is the most important factor in everything. There are many visible and invisible factors that influence price.
This is the most important thing to remember.
That’s it from me for this article.
It’s time to get to know you guys. Do you have any insights, information or perspectives to share? Do you have any additional convincing or interesting data? I would be delighted to hear your comments.
These are just a few of the interesting things I came across while writing this article.
Cryptoeconomics can be hard: Understanding Market CapLess in crypto is more difficult: Why is circulating supply important?
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