Today, let’s explore market capitalization and how market makers push prices.
Are you correctly understanding the market cap of a coin?
When researching to invest in a project, isn’t the first thing you look at its market cap and the circulating coin supply? So is its market cap the total amount of money in that project? Let’s find out.
For example, let's take a coin called coincard ;)). It has a maximum supply of 1 billion, and the circulating supply is 200 million (20% of the total supply). The current price on the exchange is $1, so we will take $1 multiplied by the circulating supply of 200 million coins, which makes the market capitalization of this coincard $200 million, and the fully diluted market cap is $1 billion. The market cap reflects the actual value of that project, while the fully diluted market cap is when all coins are unlocked and its price remains at $1.
We look at the market cap to assess the value of the project, not the amount of money that is in that project. Surely you have heard the phrases "price manipulation" and "MM pushing the price". When whales hold a lot of heavy assets and want to sell, they will start to push the price, how do they do it?
When a coin has been trading for a long time, it means that retail traders are playing with each other, everyone who sells has sold everything, and everyone who buys has bought everything. As soon as the whales throw money to absorb all sell orders, for example, if the price is at $1 and they want it to go up to $1.5, they will place a buy order at $1.5, and immediately all sell orders at prices from $1 to $1.5 will be fulfilled. The price will jump straight to $1.5 (market cap has increased to $300 million). This will create a FOMO effect; people see it suddenly increase by 50% and will rush to buy, while those who bought at lower prices feel they have enough profit and will sell. At this point, the price keeps jumping up and down in a continuous cycle. When it’s pushed up high enough, the whales will sell, causing the price to suddenly drop sharply. All your buy orders placed at lower prices will be fulfilled and you will be left behind ;)).
This is just an example, the process will happen like that. It also depends on whether the exchange wants to short or long first.
In summary, the fully diluted market cap is just a number for us to value a project. And when the price is in a downtrend + unlocking coins increases the circulating supply, it’s a double kill; we often say it’s going to the ground.
The above is an article that I wrote myself, not copied from anyone. If anyone has a different understanding, feel free to discuss with me here.
