The Price Of A Coin Means Nothing

Welcome to This Week's Edition of The Alchemists Informer!

This week’s newsletter is a little different

We usually do the latest updates in web3 gaming. Due to it being a holiday and the end of the year, there is not too many new updates from games or projects. This is understandable and expected. However, don’t take this as the web3 gaming industry coming to a standstill. Actually it’s the opposite. Refer to our last week’s edition to see why the upcoming months could be very bullish for web3 gaming.

Lately, I’ve been getting questions on market cap so I figured I’d write it down in this newsletter. Let’s find out.

Price or Market Cap?

The price of a coin means nothing. A coin at $40 can be cheaper than a coin at 30 cents. It comes down to market cap.

When people first get into crypto, they see Bitcoin at a very high price and see other coins at very cheap prices. They assume they are late to Bitcoin because the price is so high and they put some money on a coin with a “cheap” price. They fantasize that if this coin goes to $100k like Bitcoin, then they’ll be rich. Bitcoin did it, so why can’t my coin?

Let’s clarify how to use market cap instead of price.

_{What is market cap?}

Market cap = circulating supply x current price.

Think about your favorite coin. There are a certain amount of coins that are currently in existence. This is circulating supply. Now, check what the price is. Multiply these two together and you get the current market cap.

_Example

Dogecoin is at 31 cents.

ILV (Illuvium) is at $40.

Which is cheaper? Illuvium by a lot

CoinMarketCap or CoinGecko are great resources to check price, market cap, supply, etc.

Here’s some screenshots of Dogecoin and ILV from CoinGecko:

*Note: I’m using Dogecoin and ILV as examples because one has a high supply and the other has a low supply. I’m not recommending buying Doge or ILV. NFA.

Dogecoin has over 20,000x more tokens in circulation than ILV. That’s billions of more tokens.

Imagine there are hungry people at a party, and you have a single large pizza.

• Scenario 1: You cut the pizza into 10 slices. Because there are only 10 slices, each slice is bigger, and people are willing to pay $5 per slice. The total value of the pizza is $50 (10 slices × $5 per slice).

• Scenario 2: You cut the pizza into 100 slices. Now, the slices are much smaller, so they’re only worth $0.50 each. The total value of the pizza is still $50 (100 slices × $0.50 per slice).

The two different pizzas have equal market caps. Even though the total value of the pizza (market cap) hasn’t changed, the price per slice is much lower in Scenario 2 because there are so many more slices available and they are smaller.

Unless you want to do math and think about pizzas when investing (I’m hungry right now and would like some pizza), then it’s easier to look at the market cap instead of price. Price can be misleading.

Dogecoin’s market cap = $46 billion

ILV’s market cap = $292 million

ILV is cheaper than Dogecoin even though ILV’s coin price is higher.

Cheap doesn’t always mean better or worse. But it can be used to get a more realistic price target. New people entering crypto can fall for idea that their $0.00000001 meme coin can reach Bitcoin’s price of almost $100k per coin.

If Bitcoin’s valuation went to Dogecoin then Dogecoin would be worth almost $100k per coin too, right? Wrong, if Dogecoin reached Bitcoin’s current market cap valuation, it would be worth only about $12 per coin, not $100k. That’s a big difference on expectations. Dogecoin has a high supply. Bitcoin has a low supply.

Here’s a tool if you want to see how much a coin would be worth with the market cap of another coin: marketcapof.com

Higher market cap coins require more money to move their price. Lower market cap coins can have larger percentage gains (and losses) from smaller money flows, since less money is needed to impact their price.

_{How to use this info}

Go on CoinMarketCap, filter by categories, and just scroll through all the top coins in each niche (gaming, defi, memes, L1’s, etc). Over time you’ll get a feel for what valuation the top coins in each categories are trading at. If you find a new coin that you’re interested in investing in, use the market cap of established projects or similar sized projects to see if this new coin is overvalued or has room to grow. Market cap isn’t the only thing to look at but it should be one of the first things to know before aping into a token.

_Conclusion

That is the basics on market cap. Coin price is pretty much irrelevant when deciding if a coin is cheap or overvalued. Deeper topics like fully diluted valuation, total supply vs circulating supply, burning, or liquidity are worth looking into if you want to find out more. If you’re investing or trading crypto, then understanding the basics of market cap is a must and will put you ahead of the new people coming into crypto. I hope this helped to clarify things. If you have any questions or want to talk more in depth, you can reach me on Discord or X. Links to The Alchemists Discord and my X are at the bottom.

Next week we’ll get back to the latest web3 gaming updates. If you liked this style of newsletter instead of weekly updates, let us know. We’re always trying to improve.

The Alchemists Community Spotlight

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Websites to Continue Your Job Search

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Until we meet again in the gaming realm,

Blockonaut