Foundations · Lesson 2 · Beginner
What crypto is and why it is so volatile
You understand that a coin's value is price times circulating supply and why crypto is structurally highly volatile.
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Unit price is not value
A coin at 0.50 dollars is not automatically cheap. The value of a network is unit price times circulating supply, never the nominal coin price.
Why it is structurally volatile
Supply is inelastic and there is no central bank, so every change in demand feeds fully into the price. Ammous measures daily swings over 7 times higher than those of major fiat currencies.
Change price and circulating supply and see which network is really bigger.
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Test yourself
Coin X costs 0.20 dollars, Coin Y costs 4,000 dollars. Which is valued higher?
- X, because it is cheaper
- Y, because it is more expensive
- It depends on the circulating supply
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The key points at a glance
- The unit price tells you nothing. Value is price times circulating supply (network value).
- Crypto has an inelastic supply and no central bank, so demand feeds straight through into the price.
Deep dive
How to calculate network value correctly
The nominal unit price lies. What counts is the network value, meaning unit price times circulating supply. The visually cheap coin is often the larger network.
- A 0.50 dollar coin times 100 billion units is 50 billion in network value.
- A 30,000 dollar coin times 19 million units is around 570 billion.
- Distinguish circulating supply from maximum supply: future issuance is selling pressure.
Why crypto is structurally so volatile
The core is an inelastic supply: no central bank steers against it, so every change in demand hits the price in full. Ammous measured a standard deviation of daily returns more than 7 times as high as major fiat currencies.
Metcalfe effect: utility grows roughly with the square of the number of users. That produces long, steep trends up and deadly spirals down, not clean bell curves.
What this means for day trading
Volatility is opportunity and danger at once. The same sharpness that produces big moves blows up leveraged accounts.
- Fixed percentage stops don't work in crypto.
- Tie the stop to volatility, measured via the Average True Range.
- Crashes are exponential and steep, not symmetric.
Why crypto has barely any fundamentals
A coin usually carries no ownership stake, pays no dividend and has no cash flow as an anchor. The price is pure supply-and-demand dynamics, driven by sentiment and network effects.
- A coin is either a stable store of value or a 10x bet, not both.
- In day trading, crypto counts as a volatile risk asset with leverage.
- Almost all altcoins are tied to BTC and fall together as a group.
Sources: Goodman, Burniske, Ammous
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