Crypto adoption is steadily and gradually increasing over the years around the world, most especially in Malta. As Blockchain gain more adoption and high TPS (Transaction per second) to meet up with the current adopted centralized systems, many questions pop up in the minds of newbies and no coiners and that question and one of the questions is “how is the price of a coin gotten”?
This is what we’ll briefly explain today in this article. we’ll first of all introduce some terms to you that will guide you and then hit the nail on the head. For this explanation, we’ll be using coinmarketcap.com as our tool for determining the price of crypto.
There are several details on the picture above that we will be using for the sake of this topic, details such as market capitalization, volume, circulating supply, total supply (not in the picture above).
Market capitalization is just a fancy name for a straightforward concept: it is the market value of a company’s outstanding shares. This figure is found by taking the stock price and multiplying it by the total number of shares outstanding.
In other words, it is the overall worth of that stock or asset. some people describe it as the “total number of money invested in an asset or crypto project.
In capital markets, volume, or trading volume, is the amount of a security that was traded during a given period of time. In the context of a single stock trading on a stock exchange, the volume is commonly reported as the number of shares that changed hands during a given day.
On coinmarketcap.com, this “given day” mentioned in the quote above is measured in 24 hours with a USD sign attached to it and BTC (bitcoin equivalent written under.
Circulating Supply is the best approximation of the number of coins that are circulating in the market and in the general public’s hands. Total Supply is the total amount of coins in existence right now (minus any coins that have been verifiably burned) And max supply is the total number that asset (coin) that will ever be produced.
The amount of coins that is already in circulation + new mined coins which are not in the market is the Total supply. Total supply is the total number of coins that is currently in existence however not all are circulating. For several reasons there are coins that are reserved or locked and are not sold for public market which doesn’t affect the coin price. Total supply is normally equal or greater than the circulating supply.
It is the maximum number of coins that will ever exist for a cryptocurrency. There won’t be any more supply once a coin reaches its max supply cap as it is the maximum amount that can ever be mined or produced.
Now that we have these background, let’s use them to understand and learn how to determine the price of a cryptocurrency. In other to know or determine the price of a cryptocurrency, all you need do is just to divide market capitalization of that particular cryptocurrency by its circulating supply (if and only if the circulating supply is still less than its total or max supply).
So if you take any cryptocurrency at random and divide its market cap by its circulating supply, you’ll get its price. You can also use this knowledge to predict the price of a cryptocurrency. All you need is the market cap of an existing identical product and the circulating supply of the new competing project.
A good example is eos and Ethereum (Eos is a competitor to Ethereum) To determine the price of EOS in the later future, all you need do is just to check the current market cap of Ethereum and its all-time high market capitalization and diving it by the current circulating supply of EOS and you’ll get a price range (prediction: your result is the price EOS will get to know when it hits the current market cap of ethereum).