Cryptocurrency and Market Cap Pt. 2

Cryptocurrency and Market Cap Pt. 2 April 20 2018

While Market cap helps people to look at regular stocks and gauge their strength, cryptocurrencies aren’t like regular stocks. When you buy stocks you own a share in the company, even if the company tanks the company still has some worth in assets. Cryptocurreny is all built on perception, the perceived value of the stock can fluctuate rapidly and it can also bottom out. In the last blog I explained what market cap is and how it is measured with cryptocurrencies, but a quick recap, you take the number of coins in circulation and multiply that by the current price per unit. There are two big reasons market cap isn’t a great gauge for cryptocurrency, first is that the amount of cryptocurrency in circulation is different from the amount of cryptocurrency mined and second is that money invested into cryptocurrency Market cap isn’t a good gauge for cryptocurrency because it doesn’t reflect the total amount of fiat invested in the currency. Each cryptocurrency is different but for example, 17 million Bitcoins have been mined but that number doesn’t reflect the number of Bitcoin actually being used or even held. Of the 17 million Bitcoin mined it is estimated that 4 million of those Bitcoin are lost forever, and for this reason the market cap can be skewed. The second problem is the fluctuation of worth, because of the volatile state of the stock Crypto can inflate and then deflate by a thousand fold in a single day. If 10M isn’t invested into a cryptocurrency that cost $1 each then the amount of fiat invested in it is 10 million dollars, if then the crypto inflates to $10 a share the same amount is invested in the currency but the worth of the currency has gone up. The money invested isn’t reflective of the worth. For these reasons market cap isn’t a reliable gauge of the risk or strength of cryptocurrency.

 

Here are a few articles about Market Cap: 

https://hackernoon.com/why-market-capitalization-isnt-a-good-metric-for-cryptocurrencies-36a134e074f7

 https://www.reddit.com/r/CryptoCurrency/comments/7m7xdf/market_cap_is_a_meaningless_valuation_metric_in/