In brief: buyers increase the price of a token, and sellers decrease the price.
The basic economic principle of supply and demand plays a significant role in determining the price of cryptocurrencies. If there is a high demand for a particular crypto and the supply is limited, then the price will increase. On the other hand, if the supply is high and demand is low, then the price will decrease.
Market capitalization, price, and supply are all important factors that contribute to the value of a cryptocurrency:
Liquidity in cryptocurrency refers to the ability of a cryptocurrency to be easily bought or sold without significantly affecting its price. This can apply to individual coins or whole exchanges. High liquidity means that there are many buyers and sellers in the market, making it easy to buy or sell a particular cryptocurrency at any given time. Low liquidity, on the other hand, means that there are fewer buyers and sellers, and it may be more difficult to buy or sell a cryptocurrency without affecting its price.
Locked liquidity is often used in decentralized finance (DeFi) platforms as a way to ensure that there is always enough liquidity available to support trading activity on the platform. By locking a certain amount of cryptocurrency in a smart contract, the platform can guarantee that there will always be enough liquidity to support trades, even during periods of high volatility or low trading volume.
For example: a coin on a DeFi platform has a locked liquidity of 10,000 tokens, this means that 10,000 tokens are held in a smart contract and cannot be traded on the exchange. Instead, they are used to provide liquidity for the coin on the exchange, ensuring that there are always enough tokens available to support trading activity.
Investors can benefit from locked liquidity by having a greater level of confidence in the stability of the coin or exchange, as they know that there is always a certain amount of liquidity available to support trades.
The trading volume of a cryptocurrency refers to the total amount of that cryptocurrency that is traded in a given period, such as a day or a week. High trading volumes generally indicate high liquidity, as there are many buyers and sellers in the market.
Market depth refers to the number of buy and sell orders that are currently placed at different price levels for a particular cryptocurrency. A cryptocurrency with a deep market will have many buy and sell orders at different price levels, which can make it easier to buy or sell without affecting the price.
Market sentiment refers to the overall attitude or feeling that investors and traders have towards the cryptocurrency market at a particular point in time. It reflects the collective emotions, beliefs, and expectations of market participants, and can play a significant role in shaping market trends and price movements.