In the previous article, we discussed different types of cryptos. Now, let’s discuss how cryptocurrency generally behaves on the market. People who are new to crypto trading should remember that the price of cryptocurrency depends only on the people. No one is controlling the cryptocurrencies. As a result, price depends on supply and demand.
The purpose of this article is to discuss three main aspects people should pay attention to when it comes to crypto trading. These components are market cap, volatility, and liquidity.
Market cap and trading
Let’s start with market cap; it is desirable to know that market cap is short for market capitalization. It is a very important aspect as it indicates the market value of cryptocurrency. It is easy to calculate market capitalization.
A person has to multiply the market price by the circulating supply. For example, if a cryptocurrency’s current price is $3 and the total number of this cryptocurrency is 20, the market for this cryptocurrency will be $60.
It is desirable to remember that marker price refers to the current price of this or that cryptocurrency. However, the price may be different due to price fluctuations. For instance, a type of currency can be more expensive in a country where there is a shortage because of the demand.
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The aggregate price is the average price of a certain cryptocurrency among many currencies. There is a difference between the circulating supply and the total supply.
The circulating supply is the current number of coins in global circulation. The total supply refers to the total number of particular cryptocurrency will exist in the future.
Also, it is possible to calculate the total market capitalization of the crypto industry. A person must sum up the market caps of all coins to determine the market cap of the whole industry
Crypto trading and other important components
In the first part of the article, we discussed the importance of market capitalization. Let’s move to other aspects, such as volatility and liquidity.
In finance, volatility refers to the statistical measure of the dispersion of an asset’s price. It is not as hard as it may appear at first glance. It is the extent to which an asset’s price fluctuates over time. In the industry, prices are changing multiple times per day, volatility is used to measure the risk.
It is worth mentioning that cryptocurrencies are riskiest investments. It means that they are highly volatile. On the other hand, thanks to the higher risk, it is possible to earn more money.
Crypto adoption is far from being over. Currently, the price depends on the hype and speculation of the traders.
Last but not least is the liquidity, which is how easily an asset can be brought or sold without affecting the general price. Liquidity is important for any asset. However, it is even more critical for cryptocurrencies.
It is worth mentioning that high liquidity is good for any asset. The more liquid the market, the fairer the prices for everyone. Moreover, it has high liquidity as it is easy to convert crypto into cash. Also, there a big demand for the asset.
Furthermore, high liquidity also helps to keep the market in a stable position. However, different coins have different liquidity.