You often hear that there is very high probability of making profit in Crypto Currency But there is also a high probability of lose in crypto currency. It depends on your decisions about when you buy a crypto currency and when you sell crypto currency. Your decisions depends on the knowledge to check a coin has potential to doing well or not.
We all know that every crypto asset has supply, market cap, volume, and so on. All these parameters can be used to calculate the liquidity of an asset.
Now we try to understand these Supply, Market cap and volume terms.
Market cap:
Market Capitalization or Market cap is the total value of a cryptocurrency. Market cap is calculated by multiplying a company's outstanding shares by the current market price of one share.
Market Cap= Price Per Share × Shares Outstanding
For example, if XYZ Corp. trades at $10 per share and had one million outstanding shares, its market capitalization would be
Market Cap= Price Per Share × Shares Outstanding
Market Cap= $10 x 1 million shares
Market Cap= $10 million
Supply:
There is two types of supply in crypto world. Circulating supply and Total Supply. When a company create cryptocurrency coins it only circulate a portion of these token instead of all coins.
Circulating Supply is the total number of coins that are actively available for trade and total supply is the total number of coins exist or the number of coins that were already issued minus the coins that were burned.
The Circulating Supply is always significantly lesser compared to a coin's total supply.
Volume:
Crypto trading Volume measures a coin traded over a given time frame.
For example the 24 hours volume shows how much cryptocurrency has been traded over last 24 hours. Volume is an extremely important indicator for traders to determine the future profitability of cryptocurrencies. Investors analyze crypto volume baked on either trades taking place on a given crypto exchange or on all exchanges combined.
After understating these Term. Now, we discuss undervalue and overvalue.
Let's say the market capitalization of a cryptocurrency is $100M and the price of each coin is $10. If they make sales of $120M, Let's calculate their point to sale
Point to Sale=100M/120M = 0.833
Point to Sale = 0.833
This is less than 1, so we can say this asset is undervalued.
Let's see another example
If market cap of a company/asset is also $100M, pice at $10 and sales is $80M. Let's calculate the point to sale
Point to Sale =$100M / $80M
Point to Sale = 1.25
This means the asset is overvalued
When a company or asset is undervalued, it means it is doing well and it's advisable to invest in such asset. When a company is overvalued, It's not advisable to invest in such asset.
Thanks 🌹 for taking the time to read my post. If you love my post, feel free to comment and also support me, it will help to get me motivated. Remain bless as you read through this post. Thanks