Market cap, volume, liquidity and volatility explained
A coin priced at $0.01 is not necessarily cheaper than one priced at $1,000. These four numbers tell you what the price cannot.
- Market cap is price times the number of coins in circulation. It measures size, not value.
- Volume shows how much traded recently. Liquidity shows how easily you can trade without moving the price.
- Volatility is how much a coin typically swings. It decides how wide your stop needs to be.
Why price alone is misleading
A low price per coin does not mean a coin is cheap. What matters is how many coins exist. A coin can cost $0.01 and be worth billions in total, and another can cost $1,000 and be worth less in total.
Market cap
Market cap = price × circulating supply. It tells you how big the market thinks the project is. Large caps tend to be more established and move less. Small caps can move enormously in both directions and are easier to manipulate.
Coin A costs $0.01 with 50 billion coins in circulation: market cap $500 million. Coin B costs $50 with 2 million coins: market cap $100 million. Coin A is the bigger project, even though its price looks tiny.
Fully diluted valuation (FDV)
FDV uses the maximum supply instead of the circulating supply. If FDV is far above market cap, many coins have not been released yet. When they unlock, selling pressure can increase. Always check whether a project has a token unlock schedule.
Trading volume
Volume is the value traded over a period, often 24 hours. Compare it with market cap. A coin with a $100 million market cap and $200 million of daily volume is trading heavily. One with $100 million and $50,000 of volume is hard to trade. Be aware that some venues report inflated volume, so prefer large, regulated exchanges when you check.
Liquidity
Liquidity is how easily you can buy or sell without moving the price. Deep order books and a tight spread mean good liquidity. Poor liquidity means high slippage and the risk of being unable to sell when you want to. Volume and the spread are your quickest clues.
Volatility
Volatility is how much the price typically moves. One simple measure is the normal daily swing: the average distance between each day’s high and low. If a coin normally swings 6% a day, a stop 2% below your entry will probably be hit by ordinary noise. Check Check a coin to see a coin’s normal swing.
Common mistakes
- Comparing coins by price per coin.
- Ignoring unlock schedules and FDV.
- Trading coins with almost no volume.
- Placing a stop inside the coin’s normal daily swing.
See a coin’s normal daily swing, recent range and volume compared with normal.