This last few days a have heard a lot of comments regarding market cap, during the pull back the term was used to talk about the billions of dollars that were leaving the market due to FUD, and now it’s being used as a way to measure how much money is coming back to crypto every day.
So today I wanted today I would like to explain to you why market cap is very misleading and give you a few examples so you can understand it better.
First thing first, how is it calculated? You multiply the price by the number of coins in circulation, and this is where the first problem starts because it assumes that every coin in circulation was paid for at the current price when in reality we know that is not true since some people bought Bitcoin at 10 dollars while other paid 10K.
Similarly you have to keep in mind that if a sell off like the one we experienced a few days ago were to begin then the current price of the coin wouldn’t last very long since most investors would start selling their coins cheaper and cheaper to get out faster than the others also trying to sell.
The last example that I want to leave you with is this:
In order to create a market cap of 100 million dollars all you need is 100 million coins and to sell one of them for a dollar