Let’s clear this one up with an easy metaphor / short story:
You go to a ₿aker and buy two identical apples pies. Each pie is $12. You ask him to cut the first pie into 6 slices. You then ask him to cut the second pie into 12 slices.
Which pie is more valuable?
Both pies are still of equal value despite having a different number of slices. Both pies are still worth $12.
You decide you will take both pies to a charity bake sale and sell slices.
How should the slices be priced?
The pie cut into 6 slices should be priced at twice the price of the pie cut into 12 slices if things are kept equal. People will pay $2 for a large slice of apple pie, and $1 for a small slice because they generally know what an apple pie costs and can view their portion relatively.
All of the above is a basic illustration of token valuation (pie slices) as derived from total market cap (the whole pie).
I’m sure most of you are with me… so hold on… this is where people get very confused (including the OP).
At the bake sale, your clever friend notices that there are thousands of people looking to purchase pie. He suggests you cut the slices into even smaller divisions and sell them as ‘slivers’ which are simply a fraction of the original ‘slice.’ If you can cut enough slivers you will have enough pie fractions to serve everyone.
This sounds like a good idea. You decide to work on the pie that is cut into 12 slices, but the knife you have can only cut each slice so thin. You can cut 10 ‘slivers’ from each slice. This creates an apple pie with 12 slices or 120 slivers. Because the pie was $12, you decide to price each ‘slice’ will sell for $1 and each sliver for $0.10.
While you were dividing up your apple pie, some competition has moved in next to you! The ₿aker himself has decided to attend the bake sale and has brought along with him his prized seven layer chocolate cake worth a whopping $120. This prized cake is well known and commands the high price because of it’s quality and reputation.
The ₿aker cuts his cake into only 6 slices and prices each slice at $20. It’s a high cost, but some people are willing to pay for it. The ₿aker, however, knows that he can cut each slice into slivers as well. In fact he has a much better knife than you and cuts each ‘slice’ into 100 ‘slivers’! With only 6 slices he’s able to create 600 slivers.
So his $120 cake is now sold at $20 per ‘slice’ or just $0.20 per ‘sliver’.
You clever friend turns to you and says, ‘The ₿aker is a fool! His slices are fewer and more expensive, but he’s created far more slivers!’
You ask your very clever friend, “What does this have to do with anything?” and he responds,
“Well if the ₿aker’s ‘slivers’ are worth $0.20 and ours are worth $0.10, it means his slivers are only twice our price. So really his prized seven layer chocolate cake is only worth twice as much as our apple pie! If people did the math, they’d know our apple pie is really worth $60!”
Your clever friend, not sounding so clever anymore begins to further extrapolate, “So if his cake is only worth twice as much as our apple pie, we can divide the current price of his slice by 2 to figure out what our slices should be worth. He’s charging $20 per slice, which means we should be charging $10 per slice!“
You shake your head and explain to him that this is not how it works; the whole apple pie is only worth $15, and this is how people will perceive it. You tell him that the number of slices is sort of arbitrary and only a unit sufficiently small enough for most people to consume. You go on to explain that cutting ‘slices’ into ‘slivers’ is only useful to create the smallest unit of delivery for this unexpectedly busy bake sale and still service everyone no matter how small their desire for pie. You mention to your friend that, if all you had done is borrow the ₿aker’s knife, you could have easily cut your ‘slices’ into an equal number of 'slivers’ which would have only changed the price of the ‘sliver’ and not the ‘slice’. You continue to say that the number of ‘slivers’ was also rather arbitrary and held no baring on the value of the whole apple pie.
But it was too late, your very clever friend has stopped listening to you, now negotiating with the ₿aker and looking to buy as many of those $60 apple pies as the baker might sell him - all for the absolute bargain basement price of just $12.
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