Price, Bidding and Capitalization

by Davide Dal Secco
16 December 2023


The three quantitative variables to analyze of a crypto are price, supply, and capitalization-the latter being by far the most important.

1 – Foreword

Price (price) is recorded in a Cartesian chart in which the y-axis shows price values and the x-axis shows time. The graph (chart) can be linear or Japanese candlestick and represents the changes in the balance between supply and demand over time: in other words, it captures the prices at which a cryptocurrency or cryptoasset was traded in the Centralized (cex) and Decentralized (dex) Exchanges among market participants.

Usually, financial assets are priced in fiat currency (U.S. dollars are universally used to “price” assets), but in the crypto sector, stablecoins (e.g., USDT and USDC), Bitcoin, and Ethereum can also be considered as a medium of exchange to trade cryptos.

Supply (supply) is one of the main aspects of “tokenomics” of a crypto. Tokenomics is study of the economic operation of tokens and coins, ranging from creation through distribution (ICOs and IDOs) of coins to incentive mechanisms for those who use them, but that will be the subject of another lecture. In this one, we will only delve into supply, which consists of the number of coins in a coin or token and is broken down as follows: circulating, total and maximum. Distinguishing how a crypto’s coins are divided among the three supply categories is very useful in determining how the price will fluctuate depending on changes in demand.

Capitalization (market capitalization/market cap) is perhaps the most important of the three quantitative data considered in this lesson and is usually the one that is most underestimated by a neophyte investor.

Capitalization is used to determine whether the asset is undervalued or overvalued relative to its fundamentals or relative to competitors. Formula:


Let us illustrate a phenomenon that occurs whenever you invest based on your feelings and emotions. It is not advisable to invest a cryptocurrency or cryptoasset solely and exclusively because it has a price that is deemed “low/affordable,” that is, composed of figures that have many zeroes after the decimal point (Example Asset 1: $0.0001). Furthermore, it makes no sense to overlook a crypto a priori solely because it presents a “high/accessible” price consisting of digits in the thousands or tens of thousands of U.S. dollar units (Example Asset 2: $50˙000). In fact, the price of some cryptos is so low because in most cases developers define tokenomics with the purpose of attracting attention among inexperienced investors.

Example Asset 1

0.0001*10 000 000 000 000 = 1 000 000 000

Example Asset 2

50 000*21 000 000 = 1 050 000 000 000

In the case of Asset 1, where the supply of coins is huge, the price is perceived as low/affordable, and those who invest believe that they are “rich” because with a few tens of euros or dollars they buy large quantities of coins. This category of investors is called “Dumb money” and would never dwell on the fact that the capitalization amounts to $1B (one billion dollars), which is a much lower figure than that achieved by Asset 2, which is $1T (one trillion dollars). Also in the case of Asset 2, where the coin supply is narrower than in Asset 1, the price seems higher/inappropriate in the eyes of those with little capital.

By studying capitalizations, one would not make the superficial mistake of neglecting an asset solely because the price appears unappealing. In fact, if Asset 2’s capitalization is higher than Asset 1’s, it means that the market has determined that Asset 2’s value is greater than Asset 1, so the latter may not merit a large capital allocation.


Investor vs speculator

As we have already mentioned, it frequently happens that the importance of price is greatly overestimated, especially by novice investors.

Price is a tool and one can use it in different ways. It is one’s approach to it that defines how one operates in the market.

For a speculator, the price chart of a crypto is all that is needed, as a speculator is not interested in long-term investments based on fundamental analysis (FA) and on-chain analysis (BA). Volatility is all that matters to a trader: the greater the volatility, the greater the percentage fluctuations in price, thus the greater the potential profits. There are various types of trading, such as scalping, swing trading, naked trading, and so on, but they will be the subject of another lesson.

For a medium-term (3 to 12 months) and long-term ( 1 year) investor, price is a variable of secondary importance, since within a CAP (Constant Accumulation Plan) price fluctuations are mitigated by the accrual of principal. This means that the final average purchase price is not affected by the extreme phases, either upward or downward, that may affect the market. In fact, in the case financial instruments that tend to appreciate over the years, such as Bitcoin and U.S. stock indexes, an investor should theoretically be more interested in fundamentals and on-chain metrics instead of short-term price fluctuations.

Of course, it is possible to be both a trader and an investor, but the approach toward price action is made explicit in the ways just described.

Market knowledge

Price does not always and necessarily follow rational and predictable trends. On the contrary, the cryptocurrency/cryptoasset market is very emotional, young, and small, although it is continuously and strongly growing, so prices must constantly and quickly adapt to changes in the mood of market players, times when adoption increases rapidly, and even prolonged phases of declining interest.

In fact, price should be one of the last elements to be considered within a complete and thorough analysis of a project, as the chart is sometimes detached from the true “use case” for it. Below we list four cases in which this happens:

  • Hype Cycle

One or more increases in the price of a crypto may occur regardless of whether it adds value to investors or users. Social media is exploited as a megaphone to make it known to as many people as possible, so that they buy the coins that the developers or “whales” (entities with huge amounts of coins in their wallets), who invested at the birth of the project, can sell at sky-high prices. Sometimes just the fact that it is a novelty, that is, an apparent or true evolution of the technology, can generate the so-called “Hype Cycle,” which had been developed by Gartner, a consulting firm in the IT industry, to study the trend of adoption of a new technology. The risk of this phenomenon becoming similar to a “Pump-and-Dump” is very high, especially when leverage is used to artificially raise the price.

  • Media attack

Although not overtly stated, if the purpose is to discredit a specific project or a generic category of cryptocurrency/cryptoassets, then one or more news portals and magazines are paid to launch smear campaigns toward them/them that are partially or totally baseless, generating FUD and causing even a lasting drop in price; if, on the other hand, the purpose is to attract the attention of the masses, then those who are supposed to disseminate information independently are paid to write numerous articles focusing on the qualities of a specific project without considering the flaws and setting aside other interesting projects, which causes a rise in the price of the crypto in question.

  • Marketing/advertising

Typical memecoin attitude. Price is used as a red herring; if the price of a crypto has soared, then it is natural for a neophyte investor to think that there is a valid reason and that it probably has interesting features. However, in 99% of cases this is not true, and the result is inevitable: FOMO is generated for a project without a use case, but the price will sooner or later crash back to the level from which it started or to one even lower, because early investors will liquidate all the coins they have in their wallets.

  • Artificial price movements

This is “stop-loss hunting” of perpetual long or short futures contracts, a recurring event in leveraged trading. It consists of a strategy that attempts to force some market participants out of their positions by bringing the price to a level where they have chosen to set stop-loss orders. In practice, price breaks an important resistance or support level so that it activates stop-loss orders with the shadow (shadow/wick), and then moves in the opposite direction.

Trend analysis vs. price predictions

Price, or rather its trend in the chart, is used to tell, through good use of technical analysis, whether the trend is bullish, bearish, or sideways. In the latter case, price fluctuations remain concentrated for a while between a well-defined support and resistance: this is an accumulation or distribution range. Analyzing the trend is very important when one is ready to trade in the market because, understanding the nature of the trend, the trader or investor can decide how to act: buy, sell, wait. Generally, one does not trade against trend.

Particular attention should be paid to so-called “price predictions.” During a period of generalized price rise, some experts or pseudo-experts in cryptocurrencies or cryptoassets upload videos to YouTube, write on Twitter, and post content in the other social networks to spread their ideas about the “target prices” that Bitcoin and altcoins might reach according to timelines that frequently are not even mentioned. The goal is clearly to get the most views and clicks, as inexperienced investors, not doing analysis themselves, rely on other people’s research. However, price predictions can distract the investor from the strategy he had previously planned, thus causing more or less severe losses as the case may be.


Circulating or available supply (supply) consists of the amount of coins circulating in the market and is the figure that is used to calculate the capitalization of a crypto, as per the formula above.

Total supply, on the other hand, is the amount of coins that have already been generated or blocked (e.g., not yet placed in the market), from which the number of coins that have been burned (coin/token burn) is subtracted.

The maximum supply is the maximum number of coins that can ever exist in the entire life of the crypto.

Let’s look at four examples of cryptos by reporting the data at

Bitcoin (BTC)

  • Circulating supply: 19 000 000 BTC
  • Total supply: 19 000 000 BTC
  • Maximum bid: 21 000 000 BTC

Ethereum (ETH)

  • Circulating bid: 117 751 359 ETH
  • Total bid: 117 751 359 ETH
  • Maximum bid: unlimited

Polkadot (DOT)

  • Circulating bid: 987 579 314 DOT
  • Total bid: 1 103 303 471 DOT
  • Maximum bid: unlimited

Binance Coin (BNB)

  • Circulating bid: 168 137 036 BNB
  • Total bid: 168 137 036 BNB
  • Maximum bid: 168 137 036 BNB

At first glance, it can be seen that there are different ways to handle the 3 types of bidding, and this depends not only on the protocol consensus method (this topic will be covered in another lesson), but also on the function and goals that distinguish each crypto, as well as the choices of the developers.

Particularly important is thetotal supply, since we have seen that there is the case where there are coins that have already been generated but not yet placed in the market: in this sense, it is reasonable to assume that when the crypto appreciates, the part of the total supply that was not in the market can be “dumped” on the buyers, with the inevitable consequence of lowering the price.

In general, if the supply is low, then the price of crypto will be more sensitive to changes in demand: which means that, to even a small increase in demand, the price may respond with substantial rises. The same can be argued in the case where the maximum supply coincides with the circulating supply.

Finally, in order to more accurately assess how the price will move based on the demand-supply relationship, one should also analyze:

  • The consensus algorithm, e.g. PoW (Proof of Work) and PoS (Proof of Stake).
  • The distribution of rewards (the coins).
  • The burning mechanisms.
  • Inflation or supply deflation.
  • Other secondary factors that we will explore in more detail in other lectures.


From the capitalization (Market Capitalization or Market Cap) of a cryptocurrency or cryptoasset we understand many things. As anticipated, capitalization is a numerical value that is derived by multiplying the current price by the circulating supply.

Taking Bitcoin as an example, if its price remained constant for many years, capitalization would continue to increase, albeit slowly, as 900 BTC are mined every day; therefore, taking the above formula again, the number of the second member (circulating supply) would become higher every day, which would produce an increase in the result.

Of course, price is never perfectly constant since it is volatile, so price is definitely the variable that most influences capitalization.

Moreover, capitalization constitutes a quantitative data that allows not only to compare cryptocurrencies or cryptoassets with each other, but also to derive derived indicators: two of the most important ones are “Dominance” and the overall Market Cap of the sector.


In Italian, “Dominance” is a percentage number that is calculated for Bitcoin (BTC), for Ethereum (ETH), and for the major stablecoins, USDT and USDC. On TradingView they have the following symbols respectively:

  1. BTC.D | ETH.D;
  2. BTC.D | USDC.D.
  • BTC.D | ETH.D

Dominance is derived from a quotient where either Bitcoin’s capitalization or Ethereum’s capitalization is in the numerator and the denominator is the sum of the capitalizations of all existing cryptos. At the time of typing, BTC’s dominance is around 43% and ETH’s around 20%: this means that Bitcoin “weighs in” as roughly 1/2 of the entire crypto sector, while Ethereum for roughly 1/5. This derivative indicator is very useful to get an idea of how much “relative strength” BTC has against the totality of altcoins and ETH. The same argument can be made for ETH.

Comparing BTC.D and ETH.D reveals some interesting phenomena. If the price of BTC is rising faster than those of ETH, then the capitalization of BTC is eroding the market share of ETH: in this case, the price of BTC is “outperforming” that of ETH and Altcoins. When capital flows from Bitcoin to Ethereum, the Dominance of the latter rises faster than that of BTC, so ETH is relatively stronger. When this happens, historically an Altseason is about to begin, a period when Altcoins appreciate rapidly and sometimes exponentially. BTC.D can go up for two reasons: in the first case, this happens when new investors bring fresh capital into the crypto sector through Bitcoin, which usually precedes a redistribution of profits toward Altcoins, i.e., an Altseason; in the second case, BTC.D can go up during a “risk-off” period, so market participants sell Altcoins to buy Bitcoin because it is less volatile and is considered “less risky.”

Also interesting is “100-BTC.D,” which is the inverse of BTC.D, or the capitalization of Altcoins, which results in a chart that is inverse to the original chart. Sometimes it can be easier to perform technical analysis of an uptrend, rather than a downtrend.


A stablecoin is a cryptocurrency that is always worth $1. In bullish periods their respective Dominance decreases, as these stablecoins are spent to buy cryptocurrencies and cryptoassets. In this case, the capitalization of the stablecoin, which is placed in the numerator, decreases, while the capitalization of the asset being bought, which is in the denominator, increases: the result of this quotient is a smaller and smaller percentage number. Specifically, USDT.D and USDC.D are the weights of each stablecoin against the total capitalization of the crypto sector. Conversely, in bearish periods, cryptos are sold for USDT and USDC, so the respective Dominance increases until the stablecoins are reused to re-enter the market.

Bitcoin’s Dominance chart history, monthly candles

Overall capitalization

Expressed in fiat currency (euro, dollar, etc.), the overall Market Cap is nothing more than the aggregate sum of the capitalizations of all cryptocurrencies/cryptoassets. On TradingView there are 3 charts to consider: ‘TOTAL’, ‘TOTAL2’ and ‘TOTAL3’. One will find in all 3 cases a value expressed in billions (B) or trillions (T) of U.S. dollars (USD, $).

  • TOTAL is the summation of the capitalizations of all existing cryptocurrencies and cryptoassets;
  • TOTAL2 is the summation of all capitalizations minus that of Bitcoin;
  • TOTAL3 is the summation of all capitalizations minus that of Bitcoin and that of Ethereum.

In periods of high volatility, all three should be kept in check, because depending on which crypto or category of cryptos is performing better or worse than the others, one can act with the perspective of protecting one’s portfolio, leveraging capital set aside for emergencies, taking profits, and so on. For example, if TOTAL is increasing rapidly and TOTAL2 and TOTAL3 are increasing slowly, it means that capital is flowing mainly toward Bitcoin, so it makes sense to assume that in a short time these could be capital turnover: if so, then TOTAL should slow down the ascent after a while and TOTAL2 and TOTAL3 should hasten the pace.

Capitalization comparisons

With such information, one can make projections and hypothesize forecasts as to what levels of capitalization are likely to be reached in the future by individual assets, such as Bitcoin or an altcoin, or by the crypto world as a whole (see TOTAL, TOTAL2, and TOTAL3) and compare them with the Market Caps of specific assets, such as gold or silver, or of the stock and bond markets as a whole.

Clearly, it makes no logical sense to make projections that only consider price. Let’s take an example: if capitalization were not relevant, in analyses of Bitcoin’s network adoption and expansion, its price could reach $500˙000 per 1 BTC. However, one must ask whether it would be feasible in reality. Here is where capitalization comes in: how much would it amount to if the price reached $500˙000? If we set the circulating supply at 19˙000˙000 BTC, multiplying it by that price target would result in $9˙500˙000˙000˙000, or $9.5 trillion or even $9.5T. In 2021 on average, the value of Bitcoin capitalization was $1T. These are the reasons why capitalization is useful: to put things in perspective.

Certainly, one could compare Bitcoin’s capitalization with that of Microsoft (MSFT) or Apple (AAPL), if they viewed it as a technology stock. However, one would have to assume that Bitcoin’s competitor is gold, because BTC is becoming a kind of “digital gold.” If that were the case, the price of $500˙000 for 1 BTC would not be enough to bridge the gap between the two capitalizations, since that of gold is estimated at $12T. The price for one bitcoin should be roughly equivalent to $635˙000.

Author: Davide Dal Secco

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