WHAT IS TOKEN ECONOMY? - HOW TO DO FUNDAMENTAL ANALYSIS IN CRYPTOCURRENCIES? TOKENOMICS

Summary

In this video, the presenter emphasizes the importance of understanding tokenomics, particularly focusing on circulating supply, market cap, and token unlocking schedules. Using Aptos and other examples like MATIC and WLD, the video explains how supply structures can impact the value and price of a coin. The presenter advises viewers to research and adjust risk based on these factors, rather than simply focusing on price. The key takeaway is to evaluate the full supply schedule and market value of a coin before making investment decisions to avoid potential losses due to supply-related issues.

Takeaways

• 😀 Understand that price alone does not determine a coin's value. The circulating supply and market cap are much more significant when evaluating a coin.
• 😀 Be cautious of token unlocks as they can cause large fluctuations in price and market cap, especially if a large portion of coins is unlocked at once.
• 😀 Learn about the different segments of a coin's supply distribution: investors, core contributors, foundation, and community.
• 😀 Pay attention to circulating supply, as it directly affects market value. A coin with a high circulating supply can decrease in value even if its price appears to rise.
• 😀 Always check the unlocking schedules and allocations to understand how much of the token supply is available in the market and when more coins will be unlocked.
• 😀 Market cap is a better metric to evaluate a coin's potential rather than its current price. A higher market cap typically indicates more stability and less volatility.
• 😀 The fully diluted market cap (FDV) is calculated using the total or maximum supply, not just the circulating supply, giving you a more complete picture of a coin’s potential value.
• 😀 If a project has a poor supply structure or a high portion of coins being unlocked in the future, it could negatively affect the price and market cap.
• 😀 Reduce your risk by adjusting your investment based on the coin’s supply schedule. If the supply structure is unfavorable, consider lowering your investment size.
• 😀 Not all projects with high market cap or popularity will succeed. A strong coin with a bad supply schedule can fail, even if the project itself is promising.
• 😀 Be aware that coins like MATIC that have a high circulating supply may present lower risk due to reduced uncertainty around future unlocks.

Q & A

What is the importance of token unlock schedules in cryptocurrency investments?

Token unlock schedules are crucial because they determine when and how many tokens will be released into circulation. A significant increase in supply can negatively impact the token's price, especially if the market isn't prepared for the influx of new tokens. Understanding these schedules helps investors anticipate potential market shifts and make more informed decisions.

Why is market value more important than price when evaluating a coin?

Market value, or market capitalization, is the product of circulating supply and the price of a coin. Unlike the price alone, which can fluctuate rapidly, market value provides a clearer picture of a coin's total value in the market. It helps investors assess the overall scale and potential of a project, making it a more reliable metric than price alone.

What does 'circulating supply' mean in the context of tokenomics?

Circulating supply refers to the number of coins or tokens that are currently available for buying and selling in the market. This figure is crucial because it directly impacts the price and market cap, as more circulating tokens can lead to more dilution of value.

How does the unlocking of tokens affect market supply and demand?

When tokens are unlocked, they enter circulation, increasing the supply. If the demand doesn’t grow proportionally, the influx of new tokens can cause the price to drop. Therefore, investors need to consider unlocking schedules as they can lead to price volatility.

What is 'Fully Diluted Market Cap' (FDV) and why is it important?

Fully Diluted Market Cap (FDV) is calculated by multiplying the total supply or maximum supply of a coin by its current price. It provides an estimate of the coin's total potential market value if all tokens are unlocked. FDV is important because it gives investors an idea of how much more dilution can occur, affecting future price predictions.

What risks should an investor be aware of regarding token unlock schedules?

An investor should be cautious of tokens with large unlock events scheduled in the future, as these can lead to sudden increases in supply and downward pressure on the price. Understanding the timeline and quantity of unlocked tokens helps in risk assessment and deciding whether to hold or exit a position.

How can token unlocks affect the decision to buy or hold a cryptocurrency?

Token unlocks can affect an investor’s decision by revealing how much additional supply will enter the market. If a significant portion of the supply is set to be unlocked soon, it may result in a price decrease due to supply dilution, which might make it a less favorable time to buy or hold.

What role does 'total supply' play in evaluating a coin's market potential?

Total supply represents the maximum number of tokens that will ever exist for a given cryptocurrency. This figure is important because it helps investors gauge the potential for future inflation and supply growth. If the total supply is large, it could mean that the coin's value may be diluted over time unless demand grows proportionally.

How can an investor use market cap and volume data to assess a coin’s health?

Market cap gives insight into the total value of a coin, while volume indicates the liquidity and trading activity. By examining both, an investor can assess whether a coin is underpriced or overpriced based on current trading conditions. A rising volume alongside a steady or increasing market cap may indicate a healthy, growing coin.

How should an investor adjust their strategy when encountering a project with a bad supply structure?

If a project has a bad supply structure, such as a large portion of the supply being locked or an unpredictable unlocking schedule, the investor should consider reducing their exposure to the coin or adjusting their risk by lowering the amount allocated. Risk mitigation strategies like diversifying or setting exit points can help safeguard investments.