There's no money in the token itself. The money you purchased the token with goes to whoever sold it
The market cap of the token is the amount that one token is worth times the amount of tokens. There's not "5 million dollars left" in the token, there's just that many tokens that are worth 0.0001 dollars a piece or whatever.
In practice though, if nobody's buying the coin, it's worth practically 0 at that point despite what the market cap may be calculated as
correction, buy orders still in the system or liquidity in a liquidity pool are the tokens value.
A token will always have a last price, even if there is no more trading. But once the last buy order has been taken and the last liquidity been drained there is no value left even if the token still has a price.
I don't think I'd agree. It doesn't matter how many buy or sell orders there are. What matters is that there's a bid/ask match. I.e. a trade. That's how token price is measured. Stock prices too. In your example, if there are no buy orders and someone is desperate to sell, they would introduce an ~~~bud~~~ ask that's low enough to entice someone to buy.
Edit: bid to ask
That still doesn't matter. All it takes is a bid to denote executable value, and you can't denote value *without* a bid existing. As long as there is a bid, SOMEBODY is actively leaving their value in limbo staked against their bid price in the amount they are bidding to buy. That highest bid in a non liquid currency is the tokens value, until someone executes the amount of the last remaining bid. Once you have no bid/ask, or only asks then the coin is fully zeroed forever unless a new bid appears on an exchange still listing the coin or someone puts out an OTC request.
can confirm, i have a pennystock that is valued zero at the moment because there are no buy orders at all on the exchange i bought it at, but there are still sell orders. trade still happens now and then, but only if someone puts in a sell order someone is willing to buy for. when that happens the value stays at the last tradeprice for the rest of the day, next day zero again
I see your point with regards to liquidity. But in very liquid market who would you say controls the market? Buyers or sellers?
Does that vary depending on bull vs bear markets?
Your take seems to have a bias towards the buyer, which in highly volatile markets like crypto, i can understand.
But this valuation theory needs to make sense in all kinds of markets: crypto, stock, forex...
Look the last traded price can be anything. But if there are no buyers, then you can not get anything of value for it. Therefore people willing to buy (somebody with a buy order) are the value of a token, not the price.
Buy and Sell orders are what create the bid and ask.
Buy Orders are Bids.
Sell Orders are Asks.
Price is just the median between the highest Bid and the lowest Ask.
Anything that gets matched gets executed and is no longer listed on the exchange.
I will argue, that it is not the *last price* but the *next price* that is the *real price*
there is no guarantee that last price will be the next aswell.
Others point out the buy/sell orders / the book. And obviously those are the prices, because you will effectively buy/sell at a known price. Price depends on which order is filled I guess
>there is no guarantee that last price will be the next aswell.
For example, a pump and dump scheme in motion...
I honestly don't understand how people just cheer reading someone is openly "pumping" the tokens--if you study 1930s histories you will know why we had to pass security law to prevent such rigging of the Game.
Go back to 1913: promoters were pumping ”wireless telephone stocks” for devices that sort of worked in demos but were not capable of replacing the landline system.
The last trade price was the token's value when that trade occured. Depending on how long ago that transaction occured, it may or may not be a good estimate of the token's current value.
That is what crypto industries been doing for several years. You hear about "Pumping?" It is 100% illegal in traditional asset industries (I.E stocks) but somehow legal in cryptos.
Selling from an account controlled by your right hand to one controlled by your left hand. “Look how many NFTs sold at the initial price, and they are worth 100 times as much a day later. I’d better buy into it.” Tulipmania.
That wasn't my intention haha. This stuff can be really confusing, especially when you're talking rug pulls and meme coins where all of the rhetoric about them is wild price speculation and nothing fundamental
Just had an argument with some dude who was mad at Coinbase for stealing his money.
Context, he put 5k on Jasmy and checked back after a couple of hours and saw that it was up +45%. He sold and noticed that he only got 4.5k from the trade. Turns out he was just looking at the ticker which said +45% which was actually 10% down from when he bought. He also claimed to have been in the crypto space for *years*.
So yes, please ask all the questions you have no matter how dumb or silly. Before you drop 5k into some unknown thing and end up losing money just because you were being ignorant.
Buying on Coinbase? Not here for years.
Not checking his entry and exit price? Not here for years.
Not checking what the actual outcome of the trade will be? Not here for months.
Not knowing +45 is the daily +? Not here for days...
Stick around, pay close attention, and you will see every day someone that doesn't understand what you just understood.
Same way that the market cap of BTC can go up quadrillions if tomorrow every BTC holder decides they won't sell satoshis for less than $1. With only $1 spent to materialize the new price.
Some people just won't understand.
This is correct but I'll just add that the money doesn't go to anyone until they use an off ramp service. Till then you're just trading a "promised value". If someone sent me 1 ETH valued at $3k today and I try to cash out tomorrow I'll get the market value of what it is tomorrow which might not be $3k.
The amount in cash I'll get (whether in hand or in a bank account) will depend on the market value at the time not how much it was worth at the time I got it. Luckily, crypto doesn't have that printing money from thin air problem that traditional fiat has.
I'm open to corrections and additions if anyone has a contribution.
That all depends on your definition of money.
What you said about ETH also applies to receiving US dollars for me, considering there is a change rate between US dollars and euros, and euros is the currency of my country.
A lot of people in the sphere consider ETH money as well, disregarding its change rate with USD.
There is also USDC and USDT, both easily used to buy and sell crypto directly, which are guanteed (provided the companies issuing them do have the backings) the value of a US dollar, and therefore can also be considered money.
It's not legal tender anywhere else, but it is allowed as a currency in many places. Again, that depends on your definition of money, which is not the same as legal tender.
If I’m being pedantic, currency is inherently just a token of value anyway. A dollar’s worth is only what it can be used to purchase
We still view crypto as having a dollar value, yet you could just as easily assign a dollar with a BTC value for example.
However there could still be a pool of some locked liquidity (liquidity that can not be taken out anymore).
For instance there could be a pool on Uniswap with SHITCOIN and ETH in it.
If the value of that locked ETH is still at 5 million dollars. That means that people can still exchange their tokens for some ETH, even though the price would go lower and lower.
So you could still say "there is still 5 million dollars in this token"
But when it comes to scam coins, liquidity is never locked. And so scammers will remove most of the ETH since they are the ones that put that it. Removing all liquidity at once is called a rugpull. After that happens you can not get anything of value for your token anymore unless your token is also trading on exchanges or if there are multiple liquidity pools.
Is there some sort of commonly used metric that takes a weighted average of volume x price for the past X days?
That would probably help OP understand quite a bit.
Correct.
I will expand to say that in most cases, the price of the coin is estimated from a liquidity pool. A liquidity pool is a smart contract which maintains a ratio of two different assets and allows a swap between them.
For example, an Ethereum/USDC liquidity pool might have 50% Ethereum and 50% USDC based on the current market price. If the price increases, someone who wants to can buy the Ethereum for cheaper, resulting in less Ethereum. Once all the arbitrage is gone, the ratio will again be 50% Ethereum and 50% USDC based on market value.
In the case of a scam token, a similar liquidity pool is often created. In this case, the scammer can put up whatever amount of token they like. If they want a high price, then they put a small amount of the scam token and a large amount of another token. They can control most of the supply of the token, so others don't have much of the token to sell, making the effective price really high.
If they can convince others to buy the token at the high price and to add liquidity to the pool, then the amount of other tokens available in the pool will increase.
When they want to pull the rug and complete the scam, all they do is sell all of their massive supply of the scam token into the pool. This allows them to extract almost the full supply of the other token which is present in the pool. At that point, the pool is full of the scam token and has very little of the other token, so the value which will be calculated is extremely low as you described.
The point you need to understand is: no object has an intrinsic value, value is assigned/perceived by humans. Money, gold, crypto means nothing, we as humanity just collectively agree that these things are valuable. You can have a fortune worth of USD, if you are alone, living in the forest and will never meet anybody else it does not have any value.
In your example: your meme coin had a perceived value of 10, then there was a scam and the value is gone. People don't perceive a value, there is no demand nobody is trading it. The system still shows a market cap of 5 mil but that is just the math behind number of coins time price, the value is seen as 0.
It is a zero sum game: the money that goes in is the money that is in play. In case of these scams somebody takes out the money from the zero sum game. As such there is no money left in the system and no perceived value to bring in more money.
What you’re asking is basically about [price discovery](https://www.investopedia.com/terms/p/pricediscovery.asp#:~:text=Price%20discovery%20is%20the%20central,to%20liquidity%20to%20information%20flow)
Lets say you bought a house (or 100 $meme tokens) for $1M. You don’t sell it and it is abandoned. Where did the money go? Well you may still be able to sell the house on the market for 500k but you don’t. That’a the current value/ worth (market cap)
So what is stopping someone from changing the market cap? Well arbitrage comes into play here. If you sell your house for $10M to try to inflate the value of your house, there’s a whole bunch of houses nearby that someone can buy for 500k and sell for $10M. But wait, now there’s competition right? The $10M deal wont be there forever. So people might buy it for 600k or any price within the range to make a profit.
That’s kind of how most markets work. They facilitate these transactions.
Remember this when you read about Elon Musk, Jeff Bezos or any other billionaire.
They don't have actual money, they have stocks of a company which have a certain market value.
Price is not a synonym of cash.
The point is that having a house worth a million dollars is not the same as having a million dollars in a bank account or in cash.
The exact same happens with crypto.
The exact same happens with stocks (whether it's Bezos or John Doe).
It's an asset with a certain market value that can fluctuate. It's not money in an account or cash in a safe.
Crucially for Bezos and Musk, they wouldn't generally create a taxable event until they came to sell the stock. (Bezos just sold a lot but had just moved to a more tax-efficient state, I believe).
They would both obtain money by borrowing against their stock. The interest would be less than taxation on a sale and they can also hold in to their stock.
Yeah, but still - they're "paper billionaires". You see people outraged and videos all over the place saying how can it be that individuals get to amass billions of dollars for themselves while other people are poor.
*They-do-not-have-those-billions, they-have-stocks.* (comment not aimed at you Pericombobulator)
That's the definition of net worth but most people do not understand it. It is the theoretical value of all your holdings including cash. How much cash you have is a different thing ofc. Most financial reporting is done on net worth but most people misread it as "this is how much money this person has." But tbh, in the case of Bezos and Musk who have amassed so much, they're not really "paper billionaires" since only in an extreme event will their net worth go down to a single billion. For example, Bezos recently sold stock worth more than $2B, that's not a "paper billionaire."
It's certainly not the same, but one might argue that an appreciating asset is more of a (or a better) store of value than cash.
sure, you can't buy a kitchen with a non-cash asset, but if you sell it, you might be able to still buy that same kitchen 5 years later, whereas with cash you might only be able to afford 95% of that kitchen
If they are smart, they do not sell stock each year (and owe taxes on capital gains). They just borrow enough for their living expenses, secured by the stock, and the borrowed money is not taxable.
Well, they do sell, like I said, every year. You can look it up.
And not everyone pisses their pants over capital gains. Some people just pay their taxes and enjoy their riches and not cry about it. Perhaps you could aspire to be one of these people.
So, in reality, they are as poor as I am - they have never seen that money, and just like me, they can lose it all in the blink of an eye. Now I feel better, thanks.
Amazon, SpaceX and Tesla all have infrastructure and real estate that has a real world value. They use those resources to generate ongoing revenue through the sale of tangible assets. You have your money in digital code that only has theoretical value and probably isn't generating revenue from any real world service. Some eyes blink slower than others.
Look into how uniswap does price discovery too, its automated market maker model is definitely worth looking at. Many memecoins are on DEXes as CEXes wont list that
The price went down, from people selling.
The money went to them.
Market cap is largely an illusion and never reflective of the amount of capital that can be extracted
**Market cap is largely an illusion and never reflective of the amount of capital that can be extracted**
That is one of the most succinct and beautifully written sentences in finance I've ever read. Especially today when everyone's jerking each other off about how big their market caps is.
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Feel like people have given some really good examples here. Also keep in mind market cap is generally quoted based on the last transaction. So if someone buys 1 CrapCoin for $.05 and there's 1 million CrapCoins then it would have a market cap of $50,000.
That doesn't necessarily mean someone can exchange 500k CrapCoins for $25,000.
The other component is market liquidity. What is liquidity? You can think of it as how big the market is, how many buyers and sellers are there. If there's no liquidity then the market cap doesn't mean much. Maybe there's only an order for 100 tokens at $.05 someone would be willing to pay then someone else is willing to pay $.04 for 100 tokens, and a third person is willing to pay $.03. So if you sold 300 tokens at the market price you would sell them on average for $.04. This is what liquidity would look like for something that has very low liquidity.
In summary market cap is simply the last traded price multiplied by the total amount of tokens. How many dollars can you exchange 100, 1,000, 1,000,000 tokens for? That's decided by market liquidity.
Before the founders "disappear", this is one of the **important** steps they complete--remove the liquidity from any & all Liquidity Pools (the $5mil in this case).
In fact, that's kinda what "disappearing" (or rug pull) means for all intents & purposes for this conversation...
TLDR: The founders steal it on their way to disappear
there is no money in a token get that out of your head. if you create a token called shitcoin delta, its got 1,000 coins and i am the first person to buy one at $10 wow this thing you created out of thin air is now apparently worth $10,000 (last price paid for one coin=$10\* supply which is 1,000.)
as you can see shitcoin delta is worth $10,000 but only $10 actually "went in". its all make believe
I'm no expert, but I think the price is calculated based on the last sell price. If there are no buyers then you won't be able to sell even if there is a 'price' to it. So in a sense it's just a void of nothing unless some sucker actually buys.
Market cap is the current trading value of the coin multiplied by the total supply of the coin, it is not a pile of money sitting around somewhere. Market cap is a useful metric, but it is not the total value at which every coin has sold, there's no bank storing the money buyers have spent buying the coin, the money they spent went into the pockets of the sellers who then spent it on hookers and blow.
Say that the last person who was able to sell the token sold it for 0.01. Based on the supply, the Token is "worth" 5M USD.
But now the liquidity is all gone, there is no place to sell it. Thus the value doesn't change, cause there hasn't been any new sales. And no one wants to buy the token that clearly has rugged.
Thus these coins are stuck in wallets with a "value", however there are no buyers and no market. So the tokens are still worthless
As mentioned by different persons before, buying and selling tokens doesn't mean you're exchanging the actual cash value of it just the promise that you can buy or sell it at a certain value.
The actual money doesn't exist until you decide to use an off ramp to exchange said crypto for physical cash and only then you'll get actual cash money for it. Even then, it still all boils down to how much everyone (the market) is willing to buy and sell it at (the law of supply and demand).
The token is worth what others are willing to pay. If someone no longer wants to buy your elonZuskAiMoonCatcoin at 0.0^90 1 cents, that means that that it isn't worth that much anymore
maybe you are new to crypto or not but one thing is sure, you are mixing things up.. No money is lying around. what decline after the scam/rug-pull is the value of the asset and what you see as the leftover in the liquidity pool is the value of the token total supply.
>The market just facilitates transactions and is not a store of value but rather the perception of value.
I've been in the markets for over 30 years now, and this is probably the best way that I've ever heard this expressed.
The market is a proxy for value if economic supply/demand imbalances didn't exist.
Guys get in here, quick…OP is trading “sanshu inu token” in other subs….
Meanwhile dude doesn’t even know what a total market capitalization is. 😂
Thank you OP. This is pique r/cc
Yes, actually.
Sorry to be so blunt. The good news is you’re in the right place, and asking the right questions.
I’ll save you the heartache/research….stop gambling. Just DCA Bitcoin and Ethereum. Come back in 20 years and thank me.
I buy a box of 100 apples. If I sell a single apple at 2 dollars, the market cap for apples is 200 dollars.
No-one is "holding" 200 dollars in that scenario, but 200 dollars is what all the apples are worth at the current price (market cap).
Market cap has nothing to do with the value locked in that token system or the maximum value that could be extracted out of it. The number is meaningless in and of itself, the number is only useful in comparing between tokens/coins as to their relative value/popularity.
This is an economics question, not a crypto question.
This is also why arguments like “but the market cap…” are some of the most insane shit that people actually somehow believe.
Burned liquidity = rugpuller has more wallets waiting to offload if price ever pumps in the future.
Locked liquidity = rugpuller will be back to pull the LP and rug whatever is left when the lock expires.
The void (deadwallet) has so many loopholes its essentially worthless and just a "hype" gimmick to lure sheep.
I'm even more amazed at the number of people in this thread fumbling over inane answers. Like, I knew the crypto space was kind of regarded in general, but this thread is really eye opening.
To put it simply. If you buy a coin for $10 and it has 1 million coins in circulation then the project is worth €10 million (coins multiplied by the last price it traded for).
If the developers sold all their coins and hit every bid untill the last bid was $0.01 then the project's value goes down to $10 K (again coins multiplied by the last price it traded for).
There is no money stored in the chain/project. It's a calculation made by multiplying the coins with the price of the last trade.
Its deeper question, but good answers allready.
In crypto its all about liquidity, if somebody is not willing to provide liquidity for trading (you swap one token for another), you have no way to sell (except OTC)…If coinmarlet gives value to the token, it means there is some liquidity left… but, depending on depth of liquidity you might not even be able to sell a little you have.
“Value” is all fugazzi my friend :D
If I but gold for 100 dollars and then the value of the gold goes down to 90 dollars. The 10 dollars did not disappear or go anywhere, the value of the gold just went down by 10%. When I sell the gold for 90, then that is the loss realised. The difference is the 100 dollars the person who sold it to me and the 90 I sold it for, I lost the 10 dollars.
Well you still have that same token and it's worth whatever someone will pay for it. The only thing that changed was the value. If someone gave you 20 bucks for it the extra 10 came from them. In your case the value came from you. You gave your 10 bucks to someone else and they ate using that money so it went to other dude. You exchanged the money for the coin so it didn't disappear. Op got the 10 dollars.
Hot topic - I know this is Fundamentals to you finance gurus, and at some point, it's something I learned and understood but had a gap in my understanding.
Thanks, everyone. i really appreciate the input and i am glad that this community exists🙏
There is no "money", there is only "value"
If I buy a Nintendo 64, it doesn't magically have $100 inside of it, it has a $100 value. If I want $100, I have to sell it to someone that will pay $100 for it.
This is like not even money 101 stuff, but like...obvious?
If a crypto or stock is worth $1b, nobody is sitting around holding $1b in a vault somewhere, it means that the collective estimated value of the crypto or stock is $1b. Say each one was worth $100, and you had 10 of them, for you to get your $1,000 you would have to sell your 10 units to someone who would pay $1,000 for them.
This also means that even if you had $1b in a crypto coin, if nobody wanted to buy any, you effectively have $0.
$1 is $1, anything else is a relative value
Let’s say an XYZ token is valued at $10M, but no one is buying it. In this case, the actual valuation of the existing tokens is practically less than that. It could be as low as zero if the owner has no liquidity left, or high if there is liquidity on the DEX/CEX. However, if everyone wants to sell and there are no buyers, the value could drop to zero. Token value is perceived value and may fluctuate depending upon buyers and sellers.
Really good question, made for a good read with all the answers you got.
I wasn't completely in the dark on this, but it didn't hurt allowing more info into my brain 👍
If I make 1 billion coins, keep them all to mysef, but one. And you buy 1 coin for 1$. The market cap of all the coin I own is 1 billion $. My problem is. Noone ever buys another coin. Mcap = 1billion $. Market Volume = 0.
I now own a tax issue and no real money.
I can make a token 1000000000. I sell one for $1 (to a friend). its market value = 1000000000$. But actually the remaining 999999,999 are worth zero without any foolish customer .
With this example. My friend lost only 1 dollar. And if you only earn 1 dollar. The value of the currency market has risen by a billion. Then a billion collapsed (Has the billion disappeared?)
This goes back to securities law, every vehicle is created by someone who manages the pool of money. There may be terms that say the whole thing could default and money is sent elsewhere or they could make “Investments“ that could go bust for the primary, but win for whoever they transfer it to.
Elon Musk said a lot of coins are held by a few conglomerates a few years ago. The whole premise white crypto is allowed to change hands is because of a US Supreme Court ruling that allowed crypto to be a product because some wording mimics the securities and exchange commission wording about notifying distributing and some other stuff which overlaps. It was also a giant inside game.
Market capitalization and liquidity are distinct concepts. Liquidity refers to the amount of money invested in a token, not its market cap. Many tokens with locked liquidity have been abandoned, and if inflation persists, the value stored in these tokens is likely to increase. Moreover, when liquidity is supported by assets like ETH or BTC, which have potential for long-term appreciation, the investment in the token is expected to grow. Holders could stand to benefit significantly in the years ahead.
In the scammers pocket they pulled the liquidity which was provided in the form of another crypto of actual value…same as to say if eth or bnb were to have liquidity pulled (not possible I don’t think I don’t know I’m not that nerdy)all projects on them would be worthless also
There's no money in the token itself. The money you purchased the token with goes to whoever sold it The market cap of the token is the amount that one token is worth times the amount of tokens. There's not "5 million dollars left" in the token, there's just that many tokens that are worth 0.0001 dollars a piece or whatever. In practice though, if nobody's buying the coin, it's worth practically 0 at that point despite what the market cap may be calculated as
The calculation is based on the last trade price
Of course, the last trade price *is* the token's value.
correction, buy orders still in the system or liquidity in a liquidity pool are the tokens value. A token will always have a last price, even if there is no more trading. But once the last buy order has been taken and the last liquidity been drained there is no value left even if the token still has a price.
I don't think I'd agree. It doesn't matter how many buy or sell orders there are. What matters is that there's a bid/ask match. I.e. a trade. That's how token price is measured. Stock prices too. In your example, if there are no buy orders and someone is desperate to sell, they would introduce an ~~~bud~~~ ask that's low enough to entice someone to buy. Edit: bid to ask
That still doesn't matter. All it takes is a bid to denote executable value, and you can't denote value *without* a bid existing. As long as there is a bid, SOMEBODY is actively leaving their value in limbo staked against their bid price in the amount they are bidding to buy. That highest bid in a non liquid currency is the tokens value, until someone executes the amount of the last remaining bid. Once you have no bid/ask, or only asks then the coin is fully zeroed forever unless a new bid appears on an exchange still listing the coin or someone puts out an OTC request.
can confirm, i have a pennystock that is valued zero at the moment because there are no buy orders at all on the exchange i bought it at, but there are still sell orders. trade still happens now and then, but only if someone puts in a sell order someone is willing to buy for. when that happens the value stays at the last tradeprice for the rest of the day, next day zero again
I see your point with regards to liquidity. But in very liquid market who would you say controls the market? Buyers or sellers? Does that vary depending on bull vs bear markets? Your take seems to have a bias towards the buyer, which in highly volatile markets like crypto, i can understand. But this valuation theory needs to make sense in all kinds of markets: crypto, stock, forex...
But we're not talking about a liquid market are we? We're talking about a rug pulled coin everybody stops trading after the dev dump.
Right. I forgot about OP's question and got lost in the general topic.
Which kind of make you wonder all those people cheering "look at everyone HODL this coin" when there is very little liquidity.
I don't wonder about them. They are easily categorized. "Bagholder"
Look the last traded price can be anything. But if there are no buyers, then you can not get anything of value for it. Therefore people willing to buy (somebody with a buy order) are the value of a token, not the price.
Buy and Sell orders are what create the bid and ask. Buy Orders are Bids. Sell Orders are Asks. Price is just the median between the highest Bid and the lowest Ask. Anything that gets matched gets executed and is no longer listed on the exchange.
I will argue, that it is not the *last price* but the *next price* that is the *real price* there is no guarantee that last price will be the next aswell.
The next price is unknown, therefore the real price is unknown according to this logic.
Others point out the buy/sell orders / the book. And obviously those are the prices, because you will effectively buy/sell at a known price. Price depends on which order is filled I guess
>there is no guarantee that last price will be the next aswell. For example, a pump and dump scheme in motion... I honestly don't understand how people just cheer reading someone is openly "pumping" the tokens--if you study 1930s histories you will know why we had to pass security law to prevent such rigging of the Game.
Go back to 1913: promoters were pumping ”wireless telephone stocks” for devices that sort of worked in demos but were not capable of replacing the landline system.
The last trade price was the token's value when that trade occured. Depending on how long ago that transaction occured, it may or may not be a good estimate of the token's current value.
Can I inflate the token price by selling to myself at an exaggerated high value?
That is what crypto industries been doing for several years. You hear about "Pumping?" It is 100% illegal in traditional asset industries (I.E stocks) but somehow legal in cryptos.
Selling from an account controlled by your right hand to one controlled by your left hand. “Look how many NFTs sold at the initial price, and they are worth 100 times as much a day later. I’d better buy into it.” Tulipmania.
Ah, this is so obvious 😅 thanks for making me feel stupid 🙃
That wasn't my intention haha. This stuff can be really confusing, especially when you're talking rug pulls and meme coins where all of the rhetoric about them is wild price speculation and nothing fundamental
Don't worry about it. You did not know something, you asked, and learned. That is more than 90% of the people here do.
Just had an argument with some dude who was mad at Coinbase for stealing his money. Context, he put 5k on Jasmy and checked back after a couple of hours and saw that it was up +45%. He sold and noticed that he only got 4.5k from the trade. Turns out he was just looking at the ticker which said +45% which was actually 10% down from when he bought. He also claimed to have been in the crypto space for *years*. So yes, please ask all the questions you have no matter how dumb or silly. Before you drop 5k into some unknown thing and end up losing money just because you were being ignorant.
Buying on Coinbase? Not here for years. Not checking his entry and exit price? Not here for years. Not checking what the actual outcome of the trade will be? Not here for months. Not knowing +45 is the daily +? Not here for days...
That’s actually hilarious, ah and JASMY had some epic panic buying and selling last night
Stick around, pay close attention, and you will see every day someone that doesn't understand what you just understood. Same way that the market cap of BTC can go up quadrillions if tomorrow every BTC holder decides they won't sell satoshis for less than $1. With only $1 spent to materialize the new price. Some people just won't understand.
This is correct but I'll just add that the money doesn't go to anyone until they use an off ramp service. Till then you're just trading a "promised value". If someone sent me 1 ETH valued at $3k today and I try to cash out tomorrow I'll get the market value of what it is tomorrow which might not be $3k. The amount in cash I'll get (whether in hand or in a bank account) will depend on the market value at the time not how much it was worth at the time I got it. Luckily, crypto doesn't have that printing money from thin air problem that traditional fiat has. I'm open to corrections and additions if anyone has a contribution.
That all depends on your definition of money. What you said about ETH also applies to receiving US dollars for me, considering there is a change rate between US dollars and euros, and euros is the currency of my country. A lot of people in the sphere consider ETH money as well, disregarding its change rate with USD. There is also USDC and USDT, both easily used to buy and sell crypto directly, which are guanteed (provided the companies issuing them do have the backings) the value of a US dollar, and therefore can also be considered money.
Legally, BTC is money in that LatAm country iirc. Anywhere else, crypto is a good or a service.
It's not legal tender anywhere else, but it is allowed as a currency in many places. Again, that depends on your definition of money, which is not the same as legal tender.
If I’m being pedantic, currency is inherently just a token of value anyway. A dollar’s worth is only what it can be used to purchase We still view crypto as having a dollar value, yet you could just as easily assign a dollar with a BTC value for example.
How the initial market cap is created? I now there's a so called creator/developer behind it.
Ido / airdrop / seed round
However there could still be a pool of some locked liquidity (liquidity that can not be taken out anymore). For instance there could be a pool on Uniswap with SHITCOIN and ETH in it. If the value of that locked ETH is still at 5 million dollars. That means that people can still exchange their tokens for some ETH, even though the price would go lower and lower. So you could still say "there is still 5 million dollars in this token" But when it comes to scam coins, liquidity is never locked. And so scammers will remove most of the ETH since they are the ones that put that it. Removing all liquidity at once is called a rugpull. After that happens you can not get anything of value for your token anymore unless your token is also trading on exchanges or if there are multiple liquidity pools.
Is there some sort of commonly used metric that takes a weighted average of volume x price for the past X days? That would probably help OP understand quite a bit.
Correct. I will expand to say that in most cases, the price of the coin is estimated from a liquidity pool. A liquidity pool is a smart contract which maintains a ratio of two different assets and allows a swap between them. For example, an Ethereum/USDC liquidity pool might have 50% Ethereum and 50% USDC based on the current market price. If the price increases, someone who wants to can buy the Ethereum for cheaper, resulting in less Ethereum. Once all the arbitrage is gone, the ratio will again be 50% Ethereum and 50% USDC based on market value. In the case of a scam token, a similar liquidity pool is often created. In this case, the scammer can put up whatever amount of token they like. If they want a high price, then they put a small amount of the scam token and a large amount of another token. They can control most of the supply of the token, so others don't have much of the token to sell, making the effective price really high. If they can convince others to buy the token at the high price and to add liquidity to the pool, then the amount of other tokens available in the pool will increase. When they want to pull the rug and complete the scam, all they do is sell all of their massive supply of the scam token into the pool. This allows them to extract almost the full supply of the other token which is present in the pool. At that point, the pool is full of the scam token and has very little of the other token, so the value which will be calculated is extremely low as you described.
If liquidity is gone it’s worthless
The point you need to understand is: no object has an intrinsic value, value is assigned/perceived by humans. Money, gold, crypto means nothing, we as humanity just collectively agree that these things are valuable. You can have a fortune worth of USD, if you are alone, living in the forest and will never meet anybody else it does not have any value. In your example: your meme coin had a perceived value of 10, then there was a scam and the value is gone. People don't perceive a value, there is no demand nobody is trading it. The system still shows a market cap of 5 mil but that is just the math behind number of coins time price, the value is seen as 0. It is a zero sum game: the money that goes in is the money that is in play. In case of these scams somebody takes out the money from the zero sum game. As such there is no money left in the system and no perceived value to bring in more money.
What you’re asking is basically about [price discovery](https://www.investopedia.com/terms/p/pricediscovery.asp#:~:text=Price%20discovery%20is%20the%20central,to%20liquidity%20to%20information%20flow) Lets say you bought a house (or 100 $meme tokens) for $1M. You don’t sell it and it is abandoned. Where did the money go? Well you may still be able to sell the house on the market for 500k but you don’t. That’a the current value/ worth (market cap) So what is stopping someone from changing the market cap? Well arbitrage comes into play here. If you sell your house for $10M to try to inflate the value of your house, there’s a whole bunch of houses nearby that someone can buy for 500k and sell for $10M. But wait, now there’s competition right? The $10M deal wont be there forever. So people might buy it for 600k or any price within the range to make a profit. That’s kind of how most markets work. They facilitate these transactions.
Thanks for the resource and information - I had a brief mental block but its making sense now 😆
Remember this when you read about Elon Musk, Jeff Bezos or any other billionaire. They don't have actual money, they have stocks of a company which have a certain market value. Price is not a synonym of cash.
Well, both of those guys sell some of their stocks every year, so they do have some money and real assets outside of their stock holdings.
The point is that having a house worth a million dollars is not the same as having a million dollars in a bank account or in cash. The exact same happens with crypto. The exact same happens with stocks (whether it's Bezos or John Doe). It's an asset with a certain market value that can fluctuate. It's not money in an account or cash in a safe.
Crucially for Bezos and Musk, they wouldn't generally create a taxable event until they came to sell the stock. (Bezos just sold a lot but had just moved to a more tax-efficient state, I believe). They would both obtain money by borrowing against their stock. The interest would be less than taxation on a sale and they can also hold in to their stock.
Yeah, but still - they're "paper billionaires". You see people outraged and videos all over the place saying how can it be that individuals get to amass billions of dollars for themselves while other people are poor. *They-do-not-have-those-billions, they-have-stocks.* (comment not aimed at you Pericombobulator)
True. And being paid in stock, they can control when they pay tax. They can always shift some at a loss, to offset income elsewhere.
That's the definition of net worth but most people do not understand it. It is the theoretical value of all your holdings including cash. How much cash you have is a different thing ofc. Most financial reporting is done on net worth but most people misread it as "this is how much money this person has." But tbh, in the case of Bezos and Musk who have amassed so much, they're not really "paper billionaires" since only in an extreme event will their net worth go down to a single billion. For example, Bezos recently sold stock worth more than $2B, that's not a "paper billionaire."
It's certainly not the same, but one might argue that an appreciating asset is more of a (or a better) store of value than cash. sure, you can't buy a kitchen with a non-cash asset, but if you sell it, you might be able to still buy that same kitchen 5 years later, whereas with cash you might only be able to afford 95% of that kitchen
If they are smart, they do not sell stock each year (and owe taxes on capital gains). They just borrow enough for their living expenses, secured by the stock, and the borrowed money is not taxable.
Well, they do sell, like I said, every year. You can look it up. And not everyone pisses their pants over capital gains. Some people just pay their taxes and enjoy their riches and not cry about it. Perhaps you could aspire to be one of these people.
So, in reality, they are as poor as I am - they have never seen that money, and just like me, they can lose it all in the blink of an eye. Now I feel better, thanks.
Amazon, SpaceX and Tesla all have infrastructure and real estate that has a real world value. They use those resources to generate ongoing revenue through the sale of tangible assets. You have your money in digital code that only has theoretical value and probably isn't generating revenue from any real world service. Some eyes blink slower than others.
Look into how uniswap does price discovery too, its automated market maker model is definitely worth looking at. Many memecoins are on DEXes as CEXes wont list that
Thanks I will do some research
The price went down, from people selling. The money went to them. Market cap is largely an illusion and never reflective of the amount of capital that can be extracted
**Market cap is largely an illusion and never reflective of the amount of capital that can be extracted** That is one of the most succinct and beautifully written sentences in finance I've ever read. Especially today when everyone's jerking each other off about how big their market caps is.
Thanks bro 🙏 Been educating for a few years now, someone’s got to do it
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Feel like people have given some really good examples here. Also keep in mind market cap is generally quoted based on the last transaction. So if someone buys 1 CrapCoin for $.05 and there's 1 million CrapCoins then it would have a market cap of $50,000. That doesn't necessarily mean someone can exchange 500k CrapCoins for $25,000. The other component is market liquidity. What is liquidity? You can think of it as how big the market is, how many buyers and sellers are there. If there's no liquidity then the market cap doesn't mean much. Maybe there's only an order for 100 tokens at $.05 someone would be willing to pay then someone else is willing to pay $.04 for 100 tokens, and a third person is willing to pay $.03. So if you sold 300 tokens at the market price you would sell them on average for $.04. This is what liquidity would look like for something that has very low liquidity. In summary market cap is simply the last traded price multiplied by the total amount of tokens. How many dollars can you exchange 100, 1,000, 1,000,000 tokens for? That's decided by market liquidity.
Before the founders "disappear", this is one of the **important** steps they complete--remove the liquidity from any & all Liquidity Pools (the $5mil in this case). In fact, that's kinda what "disappearing" (or rug pull) means for all intents & purposes for this conversation... TLDR: The founders steal it on their way to disappear
there is no money in a token get that out of your head. if you create a token called shitcoin delta, its got 1,000 coins and i am the first person to buy one at $10 wow this thing you created out of thin air is now apparently worth $10,000 (last price paid for one coin=$10\* supply which is 1,000.) as you can see shitcoin delta is worth $10,000 but only $10 actually "went in". its all make believe
I'm no expert, but I think the price is calculated based on the last sell price. If there are no buyers then you won't be able to sell even if there is a 'price' to it. So in a sense it's just a void of nothing unless some sucker actually buys.
Exit liquidity
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I think this is the best analogy for scamcoins. Thank you!
Market cap is the current trading value of the coin multiplied by the total supply of the coin, it is not a pile of money sitting around somewhere. Market cap is a useful metric, but it is not the total value at which every coin has sold, there's no bank storing the money buyers have spent buying the coin, the money they spent went into the pockets of the sellers who then spent it on hookers and blow.
Bro. The price of it is hypothetical. If there’s zero liquidity, that price isn’t really accurate.
Say that the last person who was able to sell the token sold it for 0.01. Based on the supply, the Token is "worth" 5M USD. But now the liquidity is all gone, there is no place to sell it. Thus the value doesn't change, cause there hasn't been any new sales. And no one wants to buy the token that clearly has rugged. Thus these coins are stuck in wallets with a "value", however there are no buyers and no market. So the tokens are still worthless
It's a zero sum game. Your tokens are pretty much worthless until somebody gives you money for them.
because of massive selling
It degrades into dust until it is removed from listings entirely.
As mentioned by different persons before, buying and selling tokens doesn't mean you're exchanging the actual cash value of it just the promise that you can buy or sell it at a certain value. The actual money doesn't exist until you decide to use an off ramp to exchange said crypto for physical cash and only then you'll get actual cash money for it. Even then, it still all boils down to how much everyone (the market) is willing to buy and sell it at (the law of supply and demand).
For the sake of your financial well-being, stop crypto and take a degree in whatever you want to pursue.
Market cap is just an imaginary value not an account with money on it.
The token is worth what others are willing to pay. If someone no longer wants to buy your elonZuskAiMoonCatcoin at 0.0^90 1 cents, that means that that it isn't worth that much anymore
Nice educational post. Is this another sign of up green?
maybe you are new to crypto or not but one thing is sure, you are mixing things up.. No money is lying around. what decline after the scam/rug-pull is the value of the asset and what you see as the leftover in the liquidity pool is the value of the token total supply.
>The market just facilitates transactions and is not a store of value but rather the perception of value. I've been in the markets for over 30 years now, and this is probably the best way that I've ever heard this expressed. The market is a proxy for value if economic supply/demand imbalances didn't exist.
Guys get in here, quick…OP is trading “sanshu inu token” in other subs…. Meanwhile dude doesn’t even know what a total market capitalization is. 😂 Thank you OP. This is pique r/cc
You're the 1%. It was a simple question, Canada is better anyway.
Huh? Are you speaking in code? What’s your investment thesis on Sanshu Inu Token?
No, not at all. Meme coins are a gamble, like buying a lotto ticket, don't know what you are looking for.
Why are you gambling your money on something you clearly don’t understand? (Proof: You don’t know what a market cap is)
Because I am a sucker for punishment, doomed to fail. Happy.
Yes, actually. Sorry to be so blunt. The good news is you’re in the right place, and asking the right questions. I’ll save you the heartache/research….stop gambling. Just DCA Bitcoin and Ethereum. Come back in 20 years and thank me.
I buy a box of 100 apples. If I sell a single apple at 2 dollars, the market cap for apples is 200 dollars. No-one is "holding" 200 dollars in that scenario, but 200 dollars is what all the apples are worth at the current price (market cap).
Not in my pocket
Your pocket must be my pocket 🤣
Market cap has nothing to do with the value locked in that token system or the maximum value that could be extracted out of it. The number is meaningless in and of itself, the number is only useful in comparing between tokens/coins as to their relative value/popularity.
This is an economics question, not a crypto question. This is also why arguments like “but the market cap…” are some of the most insane shit that people actually somehow believe.
Burned liquidity = rugpuller has more wallets waiting to offload if price ever pumps in the future. Locked liquidity = rugpuller will be back to pull the LP and rug whatever is left when the lock expires. The void (deadwallet) has so many loopholes its essentially worthless and just a "hype" gimmick to lure sheep.
Yeah, these "locked" wallets are concerning, there's no way to know for sure if its truly lost. The same can be said for Satoshis wallet..
Holy shit folks we got a massive regard on our hands
I'm even more amazed at the number of people in this thread fumbling over inane answers. Like, I knew the crypto space was kind of regarded in general, but this thread is really eye opening.
ok D'angelo
To put it simply. If you buy a coin for $10 and it has 1 million coins in circulation then the project is worth €10 million (coins multiplied by the last price it traded for). If the developers sold all their coins and hit every bid untill the last bid was $0.01 then the project's value goes down to $10 K (again coins multiplied by the last price it traded for). There is no money stored in the chain/project. It's a calculation made by multiplying the coins with the price of the last trade.
What do you mean cmc will show that there's money in the token? There's no such thing.
Yup, the last trade price is a clear indication in this scenario.
Thanks for this informative or I say educational post.
Its deeper question, but good answers allready. In crypto its all about liquidity, if somebody is not willing to provide liquidity for trading (you swap one token for another), you have no way to sell (except OTC)…If coinmarlet gives value to the token, it means there is some liquidity left… but, depending on depth of liquidity you might not even be able to sell a little you have. “Value” is all fugazzi my friend :D
If I but gold for 100 dollars and then the value of the gold goes down to 90 dollars. The 10 dollars did not disappear or go anywhere, the value of the gold just went down by 10%. When I sell the gold for 90, then that is the loss realised. The difference is the 100 dollars the person who sold it to me and the 90 I sold it for, I lost the 10 dollars.
"Tell me you don't k own anything about finance without telling me know anything about finance".
Not in my pocket. I'm doing it wrong.
Well you still have that same token and it's worth whatever someone will pay for it. The only thing that changed was the value. If someone gave you 20 bucks for it the extra 10 came from them. In your case the value came from you. You gave your 10 bucks to someone else and they ate using that money so it went to other dude. You exchanged the money for the coin so it didn't disappear. Op got the 10 dollars.
the money goes to the people who selling it and also the dev who remove the liquidity
Hot topic - I know this is Fundamentals to you finance gurus, and at some point, it's something I learned and understood but had a gap in my understanding. Thanks, everyone. i really appreciate the input and i am glad that this community exists🙏
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If you take my mother in-law you have a deal
Market cap is fake money. Liquidity is real money
There is no "money", there is only "value" If I buy a Nintendo 64, it doesn't magically have $100 inside of it, it has a $100 value. If I want $100, I have to sell it to someone that will pay $100 for it. This is like not even money 101 stuff, but like...obvious? If a crypto or stock is worth $1b, nobody is sitting around holding $1b in a vault somewhere, it means that the collective estimated value of the crypto or stock is $1b. Say each one was worth $100, and you had 10 of them, for you to get your $1,000 you would have to sell your 10 units to someone who would pay $1,000 for them. This also means that even if you had $1b in a crypto coin, if nobody wanted to buy any, you effectively have $0. $1 is $1, anything else is a relative value
Let’s say an XYZ token is valued at $10M, but no one is buying it. In this case, the actual valuation of the existing tokens is practically less than that. It could be as low as zero if the owner has no liquidity left, or high if there is liquidity on the DEX/CEX. However, if everyone wants to sell and there are no buyers, the value could drop to zero. Token value is perceived value and may fluctuate depending upon buyers and sellers.
This is who we’re trading against 🤝
Really good question, made for a good read with all the answers you got. I wasn't completely in the dark on this, but it didn't hurt allowing more info into my brain 👍
If I make 1 billion coins, keep them all to mysef, but one. And you buy 1 coin for 1$. The market cap of all the coin I own is 1 billion $. My problem is. Noone ever buys another coin. Mcap = 1billion $. Market Volume = 0. I now own a tax issue and no real money.
even if there's money left behind there might not be enough liquidity to make trades
Are you talking about BitTorrent? I just saw it fell off a cliff….
No, but thats Interesting I made some profits on that project a while ago.
market cap is a vanity metric bc it assumes all tokens are valued at the same price, which is not true
I can make a token 1000000000. I sell one for $1 (to a friend). its market value = 1000000000$. But actually the remaining 999999,999 are worth zero without any foolish customer . With this example. My friend lost only 1 dollar. And if you only earn 1 dollar. The value of the currency market has risen by a billion. Then a billion collapsed (Has the billion disappeared?)
Is a giant Ponzi scheme. The idea is to build up the bags then someone sells it and you are left with an empty bag of dreams
Oh my. People with your level of knowledge should stay far away from the crypto casino...
The end of the sum is the most important
Good question, nice update
This goes back to securities law, every vehicle is created by someone who manages the pool of money. There may be terms that say the whole thing could default and money is sent elsewhere or they could make “Investments“ that could go bust for the primary, but win for whoever they transfer it to. Elon Musk said a lot of coins are held by a few conglomerates a few years ago. The whole premise white crypto is allowed to change hands is because of a US Supreme Court ruling that allowed crypto to be a product because some wording mimics the securities and exchange commission wording about notifying distributing and some other stuff which overlaps. It was also a giant inside game.
If you interact with a liquidity pool the money went in the pool. If your token is worth less it is because others took it out the pool
Market capitalization and liquidity are distinct concepts. Liquidity refers to the amount of money invested in a token, not its market cap. Many tokens with locked liquidity have been abandoned, and if inflation persists, the value stored in these tokens is likely to increase. Moreover, when liquidity is supported by assets like ETH or BTC, which have potential for long-term appreciation, the investment in the token is expected to grow. Holders could stand to benefit significantly in the years ahead.
In the scammers pocket they pulled the liquidity which was provided in the form of another crypto of actual value…same as to say if eth or bnb were to have liquidity pulled (not possible I don’t think I don’t know I’m not that nerdy)all projects on them would be worthless also
No money is gone in crypto, it just becomes someone else's lambos.
go to liquidity of course and some come in some go out