ZoneBitcoin EditorialWhen you look at a crypto, you can see many factors like its market cap, 24-hour trading volume, etc.
We will focus here on the most essential factors, namely the market cap, volume and circulating supply. You must necessarily understand the concepts to be able to invest correctly in crypto.
What determines the price of a cryptocurrency
The value of each cryptocurrency varies as you know. Basically, the price of cryptos is determined by two main factors such as supply and demand.
If you look at bitcoin, Ethereum or even Ripple, you may wonder why such a difference in price. In fact, to understand better, we must look at the side ofoffer (of supply).
So the supply of Bitcoin is lower than that of Ethereum, which is lower than that of Ripple. You want to conclude that the most expensive cryptos are those with low limited offers.
Yes, we want to think like that, however, there are plenty of cryptos with very limited offers (even lower than the 21 million bitcoins) and yet...Yet the prices are not high.
This is precisely where demand comes into play.
What makes the value of bitcoin, which has reached $60,000, is not so much because it has a limited supply, but above all because, relatively to this, it has too high a demand. Supply alone is not enough to give value to a crypto.
Why Consider Market Cap and Volume?
Market capitalization is the result of multiplying the price of a crypto with the circulating supply. The market cap also tells us the popularity of a crypto. For example, there can be cryptos with a very high price but which are not yet popular as is the case for Yearn Finance. The price is very high but ordinary people do not even know the name of this token.
That's why when you want to rank a coin, don't rank it based on its price, use market cap instead.
For a good investment, if you are looking for good growth to take, it would be ideal to consider a low market capitalization with a very high trading volume. Coins with small market capitalization can quickly increase in value (at least, more than those with high market capitalization).
Volume is the total number of cryptocurrencies that were traded in the last 24 hours. When there is a rise in a crypto, the first thing that starts to show a signal is its volume. The price follows as the volume of the coin increases.
If the volume is large, it means that the coin is active and more people have started showing interest in buying and selling. This is a very good buying signal.
To discover other metrics that will allow you to have a clearer view of crypto tokenomics, read this:
- Definition of marketCap
- Understand the different types of offers (total supply, circulation supply, etc.)
- Understanding the FDV
- La law of supply and demand in crypto
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Disclaimer: This content is for informational purposes and does not constitute financial advice. We strongly advise our readers to conduct their own independent research before committing to any investment.
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