Topic: Cryptocurrency Market Capitalizations are misleading - page 2. (Read 432 times)
Market cap is really quite a useless metric if you do not understand the point that you just made. It also helps to explain the suspicions around USDT, many people comment that USDT only has a market cap of 2b but that's quite a moot point in my opinion. It does not take many dollars to move the market by a significant amount.
Yes you are right.That's why,marketcapitalization should not be seriously taken to determine the potential of a coin.It does not express the original figure.Any one could manipulate even the marketcap of a shitcoin easily.Just by placing a high sell order and completing it,the marketcap of a coin could be easily manipulated.It clearly shows that marketcap should no more be considered to evaluate a coin.
This is also true for the traditional stock markets. Traders (buyers / sellers) always have more influence on prices than hodlers. This always makes me think that the economy is a lie.
Well the way I have read it being rationalized is that the "Stock market rewards promising businesses by diverting more funds towards them as their stock prices increase". The way i understand is that if "investors, i.e. traders" feel that a particular company like Tesla, SpaceX has a lot of potential then they will buy up their stocks driving the price up. This increase in stock value makes the company valuable and allows it to continue to make capital investments by making funds available for that.
I wouldn't go so far as saying that the economy is a lie. The system does work and it does reward innovative companies and daring entrepreneurs. What is indeed missing, is the redistribution of wealth or the trickle down effect that was promised. That probably has more to do with the coziness of big business interests and the governments.
However this is nowhere near the truth.
As most of you probably know Market cap = price x total coins in circulation which sounds ok until you give some thought to price and total coins factor. You don't know how much of total coins are available for trading and how much is in long-term storage or lost. The market cap of the coin doesn't tell you how much money is entering or leaving that market.
Plus the only major decision "market-cap" helps with is to associate the risk vs reward that company stocks offer. For example, a small-cap company will be riskier but have more possibility of giving bigger returns. Ditto for the altcoins. (Its a completely different matter that most of them are not trustworthy). A large-cap company like Apple may not give huge returns but is a comparatively low risk investment.
I don't know what else can market-cap be used for. Maybe the traders can correct me.
The reason that Market capitalizations are misleading is because if you make investment decisions on their basis (risk vs reward), its not the same as in the normal stock market. A small cap coin like MCAP has higher risk but no commensurate chances of high returns because it is basically a SCAM. Similarly, A highest cap coin like bitcoin may not be very stable but still give you huge returns. That seems to be the reason that market caps are misleading. A coins marketcap tells you nothing about its actual utility. Shitcoins get pumped that don't mean ANYTHING while good projects languish for the lack of marketing.
This is also true for the traditional stock markets. Traders (buyers / sellers) always have more influence on prices than hodlers. This always makes me think that the economy is a lie.
Here is something I just realized today and I believe there is a lot of users who never thought about it.
As the title says: Cryptocurrency Market Capitalizations are misleading
When you look at the chart of Total Crypto Market Capitalization like this one on coinmarketcap, casual observer is probably thinking that we have lost more than 500B dollars of investment in cryptocurrency in one month. From almost 800B market cap has fallen to almost 250B in one moment (now we are back to almost 500B which looks much nicer).
However this is nowhere near the truth.
As most of you probably know Market cap = price x total coins in circulation which sounds ok until you give some thought to price and total coins factor. You don't know how much of total coins are available for trading and how much is in long-term storage or lost. The market cap of the coin doesn't tell you how much money is entering or leaving that market.
I don't know how to actually explain the problem so i will try with the example.
Lets say I have a total supply of the coin: 1.000 coins
I sell to my friend 1 coin for 10$
Market cap is now: 10$ x 1.000 = 10.000 $
My friend sells that same coin to his friend for 2$
Market cap is now: 2$ x 1.000 = 2.000$
So you could come to conclusion that my project lost 8.000$ dollars while in fact only few dollars changed hands and only 1 coin has been sold. 999 coins stayed in long-term storage. This is of course highly unrealistic example but I hope you get the point.
It is really difficult to get to correct numbers for the amount of dollars that crypto investments lost during this crisis, but most people/articles seems to agree it should be in the range of 50B dollars. Nowhere near 500B as the market cap would lead you to believe. Same goes for the bull runs as well. When you take above into consideration then the whole thing with volatility in the market is much easier explained.
I hope I have given you something to think about. If this is mentioned in some other topic please put the link in the reply because I haven't stumbled on the matter trough my browsing of the forums.
As the title says: Cryptocurrency Market Capitalizations are misleading
When you look at the chart of Total Crypto Market Capitalization like this one on coinmarketcap, casual observer is probably thinking that we have lost more than 500B dollars of investment in cryptocurrency in one month. From almost 800B market cap has fallen to almost 250B in one moment (now we are back to almost 500B which looks much nicer).
However this is nowhere near the truth.
As most of you probably know Market cap = price x total coins in circulation which sounds ok until you give some thought to price and total coins factor. You don't know how much of total coins are available for trading and how much is in long-term storage or lost. The market cap of the coin doesn't tell you how much money is entering or leaving that market.
I don't know how to actually explain the problem so i will try with the example.
Lets say I have a total supply of the coin: 1.000 coins
I sell to my friend 1 coin for 10$
Market cap is now: 10$ x 1.000 = 10.000 $
My friend sells that same coin to his friend for 2$
Market cap is now: 2$ x 1.000 = 2.000$
So you could come to conclusion that my project lost 8.000$ dollars while in fact only few dollars changed hands and only 1 coin has been sold. 999 coins stayed in long-term storage. This is of course highly unrealistic example but I hope you get the point.
It is really difficult to get to correct numbers for the amount of dollars that crypto investments lost during this crisis, but most people/articles seems to agree it should be in the range of 50B dollars. Nowhere near 500B as the market cap would lead you to believe. Same goes for the bull runs as well. When you take above into consideration then the whole thing with volatility in the market is much easier explained.
I hope I have given you something to think about. If this is mentioned in some other topic please put the link in the reply because I haven't stumbled on the matter trough my browsing of the forums.
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