Topic: On market capitalization (again) (Read 295 times)

The floor is at ground zero

And at zero there's no demand for a coin, which basically tells us that the coin is dead, i.e. no one is willing to buy it at however low the price. That matches forced liquidation (selling out at whatever price is possible to obtain), and by going back in time from that point we can calculate how much the coin was really worth prior to its demise

In this vein, if we want to assess the current worth of a coin, we should kinda look into the future and find out that liquidation value (I think the term fits in well with my idea). For this purpose, we could examine the lifetimes of the now-defunct coins and look for patterns. Then we could apply these patterns to a live coin and see where it gets us

The stock market is much older than the crypto market, and we use terms like market cap, volume, circulating supply, etc., from it. My apologies if the audiences here haven't familiar with terms in finance; hence might make us confuse even more. In short:

- market value: current market price
- book value: price if the company's assets liquidated, minus its liabilities
- fair value (finance): a price that one thinks is fair considering his knowledge (usually influenced by book value, economic projections, etc.)

My point is since the market cap formula is, well, market price * circulating supply, you could change the market price variable with something else. However, since there is no book value in crypto, we couldn't use it as a floor. Then, we couldn't use fair value as well since it would be extremely random.

Maybe market spread and depth are better if we want to look at market situation (assumed order book is valid).

I think we should keep things simple

I mean comparison with stocks is only confusing us further and clouding our vision as well as proper perspective that we need, so we shouldn't really take them as an example. I don't know what you mean "fair value" here with respect to cryptocurrencies, but if by that you mean the value which follows from their real life use (as I can't think of anything else), then it would be a good starting point anyway. However, most cryptocurrencies don't have any real use, so their fair value is close to zero

Mate, you are trying to "merge" market value and book value, so it will only add more confusion.

In Bitcoin, we don't have such thing as book value, so it is impossible to obtain a "real value" like what you have proposed below:


Moreover, even with book value, often, a stock price could fall below its book value. Hence, it's impossible to measure "real value" accurately. We can only measure "fair value" with all the limitations.

The fact is that there is coins that are dormant and not moving at all makes the calculation of "real" market cap impossible, there are so many coins (millions) that are seriously just not used at all, simply at least %10 of all bitcoins in existence will never be moved, they are totally gone.

So, when you calculate you can never actually calculate the market cap by the amount of coins mined and the current price, that is what we do because we have literally no other way to do it however reality is there is millions of coins that are gone and will never be used that we don't know the exact number of, that is the trouble here, if we knew exactly how much coins are gone fully, we could remove that from the mined total coins and simply just get the real market cap but there is no method to calculate the forever gone coin number.

But this hidden demand can be sitting there at lower prices. However, we can narrow down our quest to simply determining the liquidity of the market at its present price. And as I think, it might be possible to calculate this statistic by taking bids at or near current price across the market. Indeed, it won't be a highly accurate figure but it should be pretty close, and give us a genuine insight into the current state of the market (and its liquidity)


Yeah, but it is pretty much useless (as well as misleading) if calculated according to this formula. But what's in the name?

I doubt that it'll be possible.

There is a ton of hidden demand given the fact that a) there are a lot of hidden orders in the form of both hidden orderbook entries on exchanges and OTC bids and b) People's expectations can adjust according to price movements.

Unless a model that takes both these facets into account can be invented, I don't see any way of accurately measuring what you call "market cap".

To me, market cap is a simple metric that is rigidly defined by a formula, price times quantity. Whether or not it's relevant to traders is one thing, but that's the way to calculate market cap as it is defined.

Obviously, it is not

The established definition of a cryptocurrency market cap is the worth of the market in dollars as determined by the present price only and the number of coins created (mined) so far. You multiply the former by the latter (though it doesn't really matter which by which) and get a figure which is supposed to represent how much the market is worth

My definition is quite different, though, as I suggest to calculate market cap at a certain point in time by determining how much money (read, dollars) traders and investors would receive if they were selling from this point on until all coins would be sold. And the sum of all trades multiplied by respective prices would show a real worth of the market


The market cap of Dogecoin is likely the most "real" among other coins, but since you are not that interested in either doge or its market cap, it should be kinda irrelevant (for you)

Market capitalization can be partially useful only,if we use it to measure the value of a company,not a market or an asset. Bitcoin is NOT a company.
The value of a company can be boosted using loans and leverage,so the market cap of the company's stocks can be overvalued.Nevertheless,measuring market cap is completely useless,it's like measuring the amount thin air inside a room.

I support your goal, which is to incorporate liquidity or volatility into the market cap value to achieve a more realistic value. It would be a much more helpful metric than the simple market cap.

However, calling that metric "market capitalization" would be a bad idea because there is already a common definition for that term, so I would like to suggest that you abandon your quixotic crusade. I suggest calling it (whatever "it" is) the "liquid market capitalization".

Here are my suggestions for such a value:

1. Given a money supply of N coins, the value is the average of the values of the last N coins traded, weighted exponentially by time.
2. Simply include a standard deviation with the market cap, which would indicate how confident someone could be that their trade would be at a similar price.

OK, but that is the definition that's generally accepted, is it not?  You were talking about the effect of market forces on the price and seemed to include that in your definition of "real market value".  If that's the case, I don't see why you would do that.

I'll take a look, but I'm not all that interested in doge or its market cap.

Edit:  You did make some good points in that other thread about doge and Bitfinex, but none of that has to do with market cap.

Actually yeah I get this.

When old companies were incorporated, they haded out certificates to people to say how much of the shares they hold.
If you lose your certificate and the agent files your transfer wrong then your shares may be lost in a similar way to when bitcoin are lost (for a badly managed share management scheme).

Surely this is the same with lost bitcoin; even if coins are lost, we can assume their all liquid. Those coins lost on a hard drive to landfill may be recovered again if something valuable is found under the landfill or it's carried away by something...

But that's not my objective here

My goal is not to prove how market cap (that of cryptocurrencies) is wrong or skewed (that kinda goes without saying, lol). I'd rather aim for calculating a different metric, which is pretty close to what we think as market cap but the one that would reflect how much a certain market is actually worth in some fiat currency (say, the dollar, as it seems to be the most widespread unit of measurement)

The whole point is in finding a statistic that would allow genuine and impartial comparisons of different coins (trading volumes get there pretty close, just in case). The irony is that we can in fact calculate such a metric and get a very coherent as well as exact (read, true) figure but only with respect to coins that are already dead and not traded anymore (given we know every trade made with that coin, of course)

There is nothing wrong with the present practice of calculating market cap i.e. multiplying total supply with the average trade price. This practice isn't limited to cryptocurrencies but with every security market. For example, ABC Investors invested $10M in XYZ Ltd for 5% shares and boom the market cap of company is suddenly $200M. Mr. Joe who is founder of company and holding 55% shares is now valued at $110M in the market however, he would hardly have more than $1-2M in his personal account.

Another real world case: We all hail Jeff Bezos to be the richest person on Earth. However, his wealth is measured on the basis of 16% Amazon shares he's holding. Amazon currently worth $1004B but can Jeff realizes all his wealth in liquid form i.e. cash or bank account? Absolutely not! In fact, if he even tries to sell his 16% shares, whole Amazon's market cap will collapse.

Most of the capitalization metrics are based on hypothetical values and same is the case with cryptocurrencies, nothing wrong in that. However, price tracking sites like CMC should take care of one thing, they should set minimum trading volume as requirement in order to display market value. Let say, if the coin has volume lower than $500K then its market value will be shown as nil. It's kinda weied to see coins having $100M market value and $150 volume.

I see why you are not following me here

And that's why it is important to define what market cap is, I mean the real market capitalization (capitalization as the present value, or at a certain point in time, of all coins created). If we estimate this metric in dollars, then I for one define it as the amount of dollars that can be received if all coins were sold (though not necessarily all at once). This is my definition of market cap, of the real one. In other words, it is not so much an issue of relevance as whether you agree with this definition or not


If you want to discuss Dogecoin specifically, I will follow you here

OP, I'm not following you here.  I understand what would happen if everyone dumped their bitcoin on the market all at once, but what relevance does that have to the definition of market cap?  None.  That's why the definition is the same in the stock market, and nobody takes into account the market reaction to any buying or selling forces.  Or maybe I'm just missing your point here.

In any case, I do think people put way, waaay too much emphasis on market cap when comparing cryptocurrencies, and those rankings on coinmarketcap are misleading at best.  Dogecoin has got to be one of the worst investments in crypto (even if it is a popular coin), but it has a high ranking in terms of market cap simply because of how many coins are in circulation--billions, as compared to bitcoin's millions.  Market cap tells you absolutely nothing about popularity, strength of community, utility, or whether a coin is a good bargain or a good investment.  Nothing whatsoever.

Financial institutions like banks carry a significant advantage in determining market cap. They have access to privately held proprietary data regarding how cryptocurrencies like bitcoin are handled by banking institutions. While exchange data is readily available to the public. Banks buying or selling crypto to consumers however is private information that the average trader lacks access to.

This means banks and other financial firms enjoy a significant advantage over predicting and causing future crypto price movements due to them having access to information which the average trader or market analyst could only begin to guess at.

I'll give you one example of how this works in practice. In 2019 there were news stories published claiming overall trading volume of bitcoin was at all time lows and the price of BTC would decline. This may have been half true. The volume of trading on public exchanges may have been down. But simultaneously we could only guess at what trading volumes across banks and other private financial institutions looked like. It is possible that exchange volume was down in 2019, while volume of crypto in banks and other financial institutions was way up. We would have no legitimate method to verify this.

In discussing crypto market cap. I think people should differentiate between past eras when exchanges made up the bulk majority of market cap and trading volume. And the present where banks and other institutions are now an integrated portion of crypto market cap and trading volume. Information which banks enjoy, but average traders and market analysts do not.

I come to disagree with this perspective

First of all, if you assume that market cap is real, then what does it show us in purely practical terms? I can tell you what, or rather what it should show (since it doesn't in practice, and far from that). It should tell us the liquidity of the market, i.e. how much money you can actually get by selling a certain amount of an asset without the price crashing. Then, the liquidity of a market is one of its most important characteristics as it basically tells us how real the current price is


Nominally, market cap is the result of multiplying the current price by the number of coins created. The problem is, not all coins are circulated, and when people start selling the price crashes

Main problem with coinmarketcap is that we compare crptocurrenices that come  existence with different ways. Tokens, PoS, PoW, ICO, whatever. 


Bitcoin is a PoW, so its coinmarketcap should only be compared with PoW coins.  The ones that was premised or have some tax, that should be excluded (if not excluded overall). Coins that are lost should also be excluded. On block chain forks  like BCH and BSV should be counted only active coins that were actually claimed and not all possible. No Satoshi coins on any chain.

If you go totally strict, on CMC you can compare Bitcoin only with Litecoin, Monero, Doge, ...  Not sure which is 5th anymore.

^ What should I say? In the world of finance, metrics are only numbers you shouldn't take care of. Probably I don't need to tell a lot of information and you should start to study finance so you can understand what does market cap doing here and how to use it as an advantage. Market cap really is a stupid metric you cannot liquidate. It isn't mean to be stated for us to liquidate. It is actually created to store data that supports every financial documentation. While some people are complaining about how this metric is shitty. Some are using it to liquidate their assets and takes advantage of it. It's better to be busy liquidating and earning than busy complaining and proving point.

Marketcap is real, there is no "real market cap", you don't have to try to find how much money is involved in bitcoin because it is really not something you need to be worried about, the reality is there is a market cap and there is volume and there is the price, which means people who hold all the dormant bitcoins are not willing to sell their coins for that price or maybe not even aware that they have bitcoins, all the other people are already doing trading obvious from the volume and how much people are willing to spend for bitcoin as well.

It comes down to marketcap, there is certain amount of bitcoin in existence, and there is people who buy and sell, all that calculated gives you the market cap of bitcoin or you can apply it to any other coin you want.

That's not quite correct

I'm not looking into the orderbooks and order queues they represent. What I'm talking about here are actual trades which involved the exchange of assets and thus reflect the real liquidity of a certain market at a certain price (i.e. the particular price of a trade). That's how we can define market capitalization, I mean the real one, not the repoted figure, which is only a mathematical abstraction that has little to do with real liquidity

And as I also pointed out in the OP, we can calculate this real market cap of a coin only when the coin has already kicked the bucket by looking into every executed order, its size and price. If we have the entire trade history in this case, it won't be a very difficult task to calculate how much the coin was worth in terms of  liquidity at any moment when it was traded. But that's impossible with coins that are still traded because we don't know the liquidity at lower prices

To be more accurate, the market value is not the right tool for measuring cryptocurrencies, or it is not the right tool for arranging these currencies based on many things, the most important of which is the absence of regulations that prevent scam and give real measurements of supply and demand.

As for the dependence of many sites on it, they are easy to measure and manipulate, and famous sites as CMC also have a role in introducing people to the first levels of currencies.

Even with these numbers, if we reach a good sums of market capacity with some regulations. It will be a good measure because it is difficult to manipulate.

No, the right word is useless.
The market cap is a shitty shiny metric used and abused by shills and "dev" teams to promote their useless coin.

Look at the current situation and you see above litecoin, monero or dogecoin, and even if we avoid the top coins, check the last page and you're going to see useless coins on ner dead chains that still hold millions in so-called market cap while they have a total buy order of 100 $ at best.

No, we simply don't need this metric. It's as useless as an indicator can get, even worse than koala's density per km2.

Quote from: deisik on January 29, 2020, 09:21:56 AM

So how can we evaluate a real market cap of a coin which is still very well alive, for example, Bitcoin?

You simply don't evaluate the market cap.
A clearer indicator about the real value would have been the transaction volume and the sum in buy orders, but with all those fakes data from one-week-old exchanges who claim billions in daily trade you can't.
So, better avoid them all, and enjoy a sunny winter evening with a cold beer knowing that BTC will always be in the first place.

I think if you're looking at order books, you're actually looking at a different stat altogether and to that I would say: just use volume?

Volume is obviously much better of an indicator and you can use vpvr or the real volume and supplement them with rsi or the stochastic to get a better estimate...

Even looking at active coins doesn't let you see the market cap as people could have yet to be discovered keys or could just be sat on funds they mined waiting for them to hit a certain figure...

It is not uncommon to hear that market cap is a shitty metric, while the real liquidity (dollar-wise) is way less that the reported figure. I agree with these two points. But can we evaluate and measure a real market cap or is it in fact an impossible task in and of itself? This is what I want to discuss here

Before we can purposefully and meaningfully discuss anything, we should define the subject in order to avoid confusion and possible misunderstanding. For the purpose of this topic it means defining what a real market cap actually is. Ironically, one of the ways to define it also happens to be one of the ways to measure it (provided there are indeed other ways to do the latter, of course). But the problem is, while we can certainly define it in the way described below, as a real measure it can only work in hindsight when it has already become mostly useless

So what is a real market cap of a given coin at a certain point in time? The definition is quite simple. The reported market cap of, say, Bitcoin, basically tells us how much we would get if we sold all bitcoins at the current price. It should be instantly obvious that the figure thus obtained is quite misleading and utterly deceiving because if we were to sell all bitcoins for real, the price would crash into single digits, and below. And this is exactly how we can define (and calculate) a real market cap of a cryptocurrency at any given moment

For this we should carry out a mental experiment by selling all coins and then adding up all the dollars we would thus receive at whatever price we could get all the way down until the last coin is sold. And the final total will be our real market cap at the moment we start to sell out. In practice, though, this approach is possible only with coins that are already dead, dead as a doornail. In the latter case we can examine every trade made and calculate backwards what the real market cap of that coin was at any point in its lifetime (read, while it was still kicking and ticking)

So how can we evaluate a real market cap of a coin which is still very well alive, for example, Bitcoin?