Many may not know this but that meme coin you are expecting to Hit 1$ Hallmark price may not and here is why.
We will start by explaining these 3 terms Total supply, Circulating Supply and Market Capitalization.
Total supply simply means the total number of token minted by a project.
Circulating Supply simply means the fraction of the Total supply that is made available for users to buy or sell.
Market Capitalization (Mcap) is simply the current price of a token multiplied by its total supply.
Let's say the Total supply of a token is 1000 and the current price of the token is 2$, The MCAap will therefore be Total Supply X Token current Price + 1000 X 2 = $2000MCap
Most Users don’t understand that scarcity is needed to increase the price of a token. Cryptocurrencies gain value if the demand for it is higher than the supply. The more many tokens are in circulation , the more the demand needed for its price to increase. A low supply means that the token (a share) is scarce and if in high demand, its price will likely go up. On the other hand, if the demand for a cryptocurrency is low and the token has a large supply, its price may drop.
NB: By Demand we mean here is Purchasing power(Buying power$ not selling).
Digital scarcity is the idea that a digitally native asset can be programmed to have an immutably (permanently) limited/Fixed supply. An Example of this Digital scarce Commodity is “Bitcoin” The pioneer cryptocurrency with limited supply of 21 million.
Let’s take for instance Token A has a total supply of 1,000 and token B has a totally supply of 10,000, if we input the same amount of liquidity each to Token A and Token B (eg $1000). The price of Token A will be 10x that of Token B,
let’s say Price of A = Liquidity /Total supply
Therefore Token A: 1000$/1000 = 1$
Price of Token A= Liquidity /Total supply
Therefore Token B: 1000$/10,000= 0.1$
This implies that the more the total supply is high the more it will require more purchasing power to pump the token. Now for meme coins with Billions and trillions of total supply it is practically hard for the to hit 1$ with such amount of token.
This is why many projects have invented many models to help solve this problem.
Example of this model includes:
- Burn Mechanism
- Locking mechanism
- Vesting mechanism
- Circulating mechanism
We will explain each of this in our subsequent articles stay tuned, Do follow our blog on Publish0x.
Cryptonalyzed Blog •2023•
