I'm trying to fully understand how market capitalization works and it's still a bit confusing. I know that market capitalization basically is how much money is currently spent on an asset.
If Alice and Bob both bought Bitcoin worth $20, the market cap would be $20 * 2 = $40 (Price x circulating supply).
But why does price increase when the market cap increases? Let's imagine this scenario:
Alice and Bob bought again 2 more Bitcoins and now they each have 2 Bitcoins and now the market cap is 80$.
If we try to calculate the price by using price = market cap / circulating supply, it would be:
80$ (Alice's and Bob's money) / 4 (current circulating supply) = 20$ (the same as it was beforehand).
I also read that you should assume that the circulating supply is a constant, then it would make sense, maybe... But why should I even assume this, if the supply s not a constant? Can someone explain it with a clear example?