Bitcoin started the week trading below $19,000, as recent economic pressures continued to weigh on cryptocurrency markets. The token fell lower in today’s session, as market sentiment remained bearish following last week’s rate hikes by the U.S. Federal Reserve. Ethereum was also lower, falling below $1,300. Bitcoin Bitcoin (BTC) slipped below $19,000 to start the […]Read More
The hacker stole 732 ETH worth about $950,000 and sent it to the sanctioned Tornado Cash mixer. Hacks and exploits continue to plague the decentralized finance (DeFi) sector as another vanity wallet address joins the roster of DeFi victims, which, collectively, have lost more than $1.6 billion in 2022. In an alert published by blockchain security firm PeckShield, a hacker was detected after stealing 732 Ether (ETH), around $950,000, from an address created at the Ethereum vanity wallet address generator called Profanity. After draining the wallet, the exploiters sent the crypto to the recently sanctioned crypto mixer Tornado Cash. #PeckShieldAlert Seems like $950k worth of crypto has been stolen by 0x9731F from Ethereum “vanity address” generated with a tool called Profanity. The exploiter already transferred ~732 $ETH into Mixer pic.twitter.com/QOZfnE49H4— PeckShieldAlert (@PeckShieldAlert) September 26, 2022 Vanity addresses are customized crypto wallet addresses that are generated to include words or specific characters chosen by the owner. However, as pointed out by recent exploits, the safety of vanity addresses remains questionable. Earlier in September, decentralized exchange (DEX) 1inch Network warned community members that their addresses were not safe if they we generated using Profanity. The DEX called out crypto holders with vanity addresses to transfer their assets immediately. According to 1inch, the vanity address generator used a random 32-bit vector to seed 256-bit private keys, which means that it lacks safety. Following the DEX’s warnings, ZachXBT, a blockchain investigator, haannounced that an exploit of the vulnerability in Profanity has already allowed some hackers to get away with $3.3 million worth of digital assets. Related: White hat: I returned most of the stolen Nomad funds and all I got was this silly NFTOn Sept. 20, the United Kingdom-based crypto market maker suffered an exploit that led to $160 million in losses. According to researcher Ajay Dhingra, the exploit may have been due to the firm’s hot wallet being compromised and manipulating a bug in the smart contract. Evgeny Gaevoy, the firm’s founder and CEO, called out the attackers to get in touch as they are open to treating the exploit as a white hat hack.Read More
Large financial institutions are getting involved in digital assets by investing capital, time and effort into custody technology solutions. Until 2020, most of the crypto market action was largely driven by retail enthusiasm. It was only around August 2020 that institutions started to participate meaningfully in this asset class. As the United States Federal Reserve unleashed trillions of dollars of liquidity into the market during the COVID-19 pandemic, retail and institutional investors jumped onto the cryptocurrency bandwagon.While crypto loyalists claim large-scale institutional adoption over the last couple of years, the entire asset class is only around $1 trillion in size. That is quite small when compared to the gold market of $11 trillion and the bond market of over $100 trillion. There is still a long way to go for the institutional adoption of crypto and blockchain-based digital assets.A quick look at Coinbase’s trading volumes below shows the rise of institutional capital in crypto. But, it is also clear that the institutional numbers are quite modest when compared to other asset classes.Some institutions, particularly top-tier banks and fintech, have started building capabilities to offer digital asset products and services to their clients. This is because banks and fintech are starting to see crypto, nonfungible tokens (NFTs) and other digital assets as a systemically important asset class. Not offering these products and services to their clients would be leaving a pot of money on the table.These clients that banks serve vary from hedge funds, asset managers, family offices, corporations, small and medium enterprises, to even retail customers. However, it is easier for banks to serve their institutional clients first, as they would have to go through lower regulatory hurdles than when serving a retail audience. Financial institutions have focused on a few capabilities that have lower regulatory hurdles such as custody and data analytics within the crypto space. While this is largely true with banks, fintech have taken a more retail-friendly approach. For instance, Revolut offers crypto services to its customers.As the first article in a series focusing on institutional involvement in digital assets, we will look into institutional custody solutions for digital assets.What is digital asset custody?Digital asset custody is the process of storing crypto, NFTs and other forms of digital assets safely and securely.For the many things that Web3 and cryptocurrencies have got right, the user experience behind onboarding and self-custody is still lacking. A new user typically creates an account on an exchange like Coinbase or Binance and buys crypto there. These cryptocurrencies sitting in their exchange account are under the custody of the exchange.However, if a user wants to take custody of their digital assets holdings, they would typically move them to a wallet like MetaMask or Phantom. This is called self-custody. This can be intimidating for users as it requires remembering a private key. To date, about four million Bitcoin (BTC) have been lost due to owners losing their private keys.Self-custody may not be a solution for everyone. At the same time, institutions that provide custodial…Read More
The stablecoin’s top-rival Tether has witnessed growth in its market cap, on the other hand. The market capitalization of USD Coin (USDC), a stablecoin issued by U.S.-based payment tech firm Circle, has dropped below $50 billion for the first time since January 2022.On the weekly chart, USDC’s market cap, which reflects the number of U.S. dollar-backed tokens in circulation, fell to $49.39 billion on Sept. 26, down almost 12% from its record high of $55.88 billion, established merely three months ago. USDC versus USDT weekly market cap chart. Source: TradingViewIn contrast, the market cap of Tether (USDT), which risked losing its top stablecoin position to USDC in May, crossed above $68 billion on Sept. 26, albeit still down 17.4% from its record high of $82.33 billion in May 2022.The divergence between USDT and USDC shows investors’ renewed preference for the former. Let’s take a look at the factors boosting Tether as the top stablecoin.Binance’s USDC suspensionBinance, the world’s largest cryptocurrency exchange by volume, announced earlier in September that it would convert its users’ USDC balances for its own stablecoin, Binance USD (BUSD). The conversion will commence on Sept. 29 and does not apply to USDT.The exchange said it wants to “enhance liquidity and capital-efficiency for users” via what appears to be a forced conversion in an increasingly competitive stablecoin sector. As a result, Binance suspended spot, future and margin trading in USDC.8/ 1. Binance's forced "Auto-conversion" is blatantly monopolistic behavior of a typical FinTech companyThey are no better than traditional banks that have the power to freeze or take control of user fundsWhere is the decentralized future that #Web3 users were promised?— Momentum 6 (@Momentum_6) September 21, 2022 USDC’s market cap has plunged by $9.5 billion since the announcement.Following Binance’s footsteps, the India-based cryptocurrency exchange also stopped deposits of USDC beginning Sept. 26.Related: Binance: No plans to auto-convert Tether, though that ‘may change’Whales ditch USDC after Terra fiascoThe USDC supply help by top 1% addresses (aka whales) has dropped to 88.36% in September from its year-to-date high of 93.84% in February, according to data collected by Glassnode.USDC supply held by top 1% addresses. Source: GlassnodeInterestingly, the plunge accelerated after Terra, a $40-billion “algorithmic stablecoin” project, collapsed in May, stirring a negative sentiment toward the entire stablecoin industry. For instance, the total market cap of all stablecoins saw the worst correction in 2022, dropping from a February high of $97.37 billion to $80.65 billion in September, according to CryptoQuant.All stablecoins’ circulating supply. Source: CryptQuantTornado Cash sanctionsThe USDC market cap plunge has accelerated after the U.S. Treasury imposed sanctions on crypto mixing service Tornado Cash over money laundering concerns. Circle responded to the sanctions by freezing all USDC wallets owned by Tornado Cash. The firm also prevented addresses that may be associated with the banned mixing service from using USDC. In contrast, Tether avoided blacklisting Tornado Cash addresses.Independent market analyst Geralt Davidson treated Circle’s response to the Tornado Cash sanction as a cue that holding USDC is riskier compared to its stablecoin rivals. “People now have realized there…Read More
The Binance crypto exchange will burn all trading fees collected on its LUNC/BUSD and LUNC/USDT spot and margin pairs. To support the Terra community’s efforts to revive the Terra (LUNA) — now renamed Terra Classic (LUNC) — token, crypto exchange Binance announced an off-chain burning mechanism last week. However, after receiving mixed reactions from community members, the exchange revised its burning approach. On Sept. 23, Binance CEO Changpeng Zhao wrote that the exchange will create an optional 1.2% tax when trading LUNC. Zhao added that they will roll out the 1.2% tax for all LUNC trading if traders who opt-in to pay the tax reach 50% of the total LUNC trading volume on the exchange, leaving the decision to users. However, days after the post, Zhao laid out the flaws of their previous plan. Because of this, Binance announced a revised method to support the revival of LUNC. According to Zhao, the exchange will now completely burn all the trading fees that it collects from its LUNC/BUSD and LUNC/USDT spot and margin trading pairs. The fees collected will be converted into LUNC and sent to LUNC’s official burning address.Through this, the Binance CEO believes that the exchange will be able to contribute to decreasing the supply of LUNC and be “fair” to all users. Related: Exchanges criticized for ‘nothingburger PR’ posts on upcoming LUNC tax burnAfter the infamous Terra collapse, LUNC investors continued to advocate revival methods for the crypto token. Exchanges supported the revival through airdrops, listing, buyback and burning while community members worked on implementing a 1.2% on-chain tax burn for all LUNC transactions. Following this, the token showed signs of life, soaring by 250% on Sept. 9.Meanwhile, South Korean authorities are now after Terraform Labs founder Do Kwon for allegedly violating the country’s capital markets law. A court located in Seoul, South Korea issued an arrest warrant for Kwon and five others on Sept. 14. Following this, the International Criminal Police Organization (Interpol) issued a “Red Notice” for Kwon on Monday. The Red Notice is a type of request for law enforcement bodies across the globe to arrest persons facing various situations like legal charges.Read More
Hoskinson called the Ethereum Merge a flawed PoS implementation, claiming custodial staking would create issues for the network in the long run. Charles Hoskinson, founder of Cardano and co-founder of Ethereum, got into a war of words with Ethereum developers on the implementation of the proof-of-stake (PoS) consensus via the Ethereum Merge.On Sunday, Web3 investor Evan Van Ness shared an unpopular opinion, claiming that the Ethereum Merge could have been shipped earlier. Vitalik Buterin, co-founder of Ethereum, agreed with Van Ness’s comments and said they should have implemented an NXT-like chain-based PoS consensus. Hoskinson joined in the conversation, claiming Ethereum developers should have implemented the Snow White protocol to ensure a faster migration to PoS. You should have just implemented snow white with Elaine's help. It would have saved you a heck of a lot of pain and effort.— Charles Hoskinson (@IOHK_Charles) September 25, 2022 Snow White, a protocol Hoskinson has advocated for years, is one of the first protocols to provide end-to-end, formal proofs of security for a PoS system. But Hoskinson’s response opened a can of worms, which later led to a heated debate between the Cardano founder and Van Ness, along with other Ethereum developersHoskinson claimed that his ideas regarding the technical upgrades on the Ethereum network from 2014 still hold better than what the Ethereum network has upgraded to post Merge. Van Ness quickly reminded Hoskinson that he was fired from Ethereum within six months because of his poor behavior and lack of any significant technical contribution.Related: Cardano Vasil upgrade ready with all ‘critical mass indicators’ achievedEarlier on Monday, Hoskinson, in a Twitter thread, accused Ethereum developers of ignoring Ouroboros — a secure PoS blockchain and the first protocol to be based on peer-reviewed research — throughout the last five years. He also claimed that the current version of its PoS upgrade with custodial staking is a bad design.Ethereum core developer Hudson Jameson called out Hoskinson’s claims regarding the Ouroboros protocol implementation. He even said that Ethereum devs disliked Cardano primarily because of his “attitude and actions as the face of Cardano.” I guess Charles forgot about his Reddit history and how much he shit on Ethereum as he was building Cardano. Additionally, Vitalik did review Ouroboros a while ago.Ethereum devs aren't wanting to look at Cardano because of your attitude and actions as the face of Cardano. https://t.co/QB3QYRKkm5 pic.twitter.com/daX56FfwGv— Hudson Jameson (@hudsonjameson) September 26, 2022 Jameson then reminded Hoskinson of his poor treatment of the Ethereum Classic community and asked him to quit playing the victim.Hoskinson is known for his hot takes on his former project, and the war of words between the two communities is nothing new. However, with both blockchains undergoing key upgrades on their networks, the recent exchange between the two sides highlights the disconnect between blockchain communities.Read More
Hadean, a company using computing to scale virtual and metaverse worlds, has successfully closed its Series A funding round, raising $30 million. Among the companies that invested were gaming giant Epic Games and Chinese entertainment behemoth Tencent. Hadean aims to keep developing its metaverse-scaling infrastructure and software. Hadean Closes $30M Series A Funding Round Hadean, […]Read More
Ironbeam is a U.S. registered Futures Commission Merchant (“FCM”) which offers trading on crypto nano futures thanks to a partnership with Coinbase Derivatives. The brokerage charges no commission* on these Bitcoin and Ethereum contracts, as well as requiring low margin. Trade Cryptocurrency Nano Futures Contracts Headquartered at the Chicago Board of Trade, Ironbeam launched […]Read More
The South African financial services giant, Nedbank, is reported to have acquired a village in the metaverse. The village will be used to showcase African creativity and to create experiences that “go beyond banking.” By securing a virtual property in Ubuntuland, Nedbank became one of the first financial institutions in Africa to embrace the metaverse. […]Read More
AC Milan, a popular soccer team in the Italian Serie A league and the current champion, announced the launch of a new non-fungible token (NFT)-based project. The organization established a partnership with Monkeyleague, a Solana-based Web3 soccer game, which became its official NFT partner to launch a new series of NFT branded game assets for […]Read More
Market capitalization is one of the most popular metrics in finance. It was first introduced in the stock market and has been adapted to the crypto world where it is used to value cryptocurrencies.
Crypto market cap has its supporters and its critics. Supporters view market cap as a simple, albeit incomplete way to rank cryptoasset projects. Critics insist that market cap is not a measure of value but a crude expression of the price investors are willing to pay. Both sides make valid points.
Crypto market cap is calculated by multiplying the circulating supply of a coin by its current price. For example, if a digital currency has 1,000 tokens in circulation, and each token trades at $100, the market capitalization of the project is $100,000.
As with stocks, cryptocurrencies are classified in terms of market cap. Large-cap cryptocurrencies have market caps in excess of $10 billion, mid-cap cryptocurrencies range between $1 billion and $10 billion, and small-cap cryptocurrencies are worth less than $1 billion. In the world of stocks, the higher the market cap, the safer the investment. In the world of cryptocurrencies, a high market cap is less meaningful.
If the market cap of a cryptoasset is high, it means that it trades at a high price, has a high circulating supply, or both. If the market cap is low, it signals that the price per coin is low, there is little circulation, or both. This is all that market cap can reveal about a cryptocurrency. Nothing more. It can’t express whether tokens are held by a network of small investors or a handful of whales, it doesn’t speak to liquidity, and it is silent on max supply.
Crypto market cap is a source of controversy. There are those who claim that market cap reflects the amount of fiat currency invested in a cryptoasset. This is wrong. Consider an influx of new investors to a project with low trading volume. Due to the market’s lack of depth, the sudden interest dramatically drives up prices. Let’s say that the token goes up 50%, from a million-dollar market cap to $1.5 million. Does that mean that the investors pumped in $500,000? Absolutely not. The new market cap merely reflects the price that the last investor was willing to pay.
Another example: take a new cryptocurrency with a circulating supply of 100,000. It goes live, and the first investor buys a token for $5. Once that trade is executed, the project will have a market capitalization of $500,000. Yet only \$5 changed hands.
All that said, when considered with other indicators, crypto market cap can be useful. It’s quite common to look at market cap alongside metrics like trading volume and liquidity. Trading volume refers to the number of coins being traded across the world’s cryptocurrency exchanges. Liquidity measures the degree to which an asset can be bought or sold without causing a major price change. In most cases, high volume and high liquidity mean a healthy market that is difficult to manipulate. Indeed, a classic way to measure the quality of a cryptocurrency is to check whether its trading volume is equal to or greater than its market cap.
Crypto market cap has major drawbacks, yet it remains the go-to indicator for many investors, analysts, and commentators. This is unfortunate. At best, market cap can serve as a jumping-off point for evaluating a cryptocurrency. But it is only truly helpful when used in tandem with other metrics like trading volume.
Although market cap is, at best, an incomplete indicator of cryptoasset quality in some cases, it can be a useful starting point for analyzing an investment opportunity.
Market cap reveals a bit about a coin’s characteristics. For example, high market cap could indicate that a cryptocurrency is resistant to volatility. Low market cap indicates the opposite, that major news events or whale activity can significantly impact price. However, crypto market cap can only take you so far. To get a strong read on volatility, you’d have to combine market cap with other metrics like market depth or transaction volume.
Traditionally, stocks are analyzed with metrics such as price-to-earnings (P/E) and earnings-per-share (EPS). Crypto projects don’t publish financial statements, but there is still a need for comparison. Over time, the simplicity of market cap has made it the most popular way to compare cryptoassets. For this reason alone, crypto market cap matters. It’s important because crypto investors, exchanges, aggregators, and project owners think it’s important.
Experienced investors will usually consider multiple indicators, but there are some who base their decisions exclusively on market cap. Crypto exchangesuse market cap as a way to determine which coins to list – coins with higher caps are more likely to make it. Exchange data aggregators tend to rank projects by market cap. The higher an asset’s market cap, the more prominently it will be featured on the site. Project owners take market cap seriously enough to spend time and money manipulating the circulating supply or price of their tokens. This is just one reason why crypto market cap is considered a misleading or unreliable indicator.
To summarize, crypto market cap matters because it’s easy to understand and a decent starting point for analyzing a cryptoasset. It’s also important because so many players consider it to be important. As the crypto space matures, better tools will be developed that will provide market participants with in-depth, actionable information. When that happens, market cap will likely lose its place as the leading crypto indicator.
As of this writing, the global crypto market cap all-time high is $813.9 billion ($813,871,000,000 USD). The market reached this level on January 7, 2018.
Crypto market cap is calculated the same way as stock market cap, by multiplying the circulating supply of an asset by its price in fiat currency (e.g. USD, EUR, JPY). The calculation gets trickier when an asset is traded against another asset. In a crypto pair – let’s say Ethereum/Bitcoin or ETH,BTC – to get the price of ETH, we would first denominate BTC in fiat.
In order to understand market cap, it’s important to consider its constituent parts – price and circulating supply. Price depends on who makes the calculation. The general price is calculated as a composite of spot prices used on crypto exchanges. For index funds, which have recently become popular, the calculation is adjusted to include variation in trading pair prices. The price that you see on online news aggregators (Google, for example) is usually the average price at which an asset trades on leading exchanges.
In the crypto space, the problem of inadequate pricing is well-known. Most pricing index issuers fail to detail how they price instruments or where they get their data. At Coins Marketcap, we strive to set this right. Our methodology takes the price at which an instrument last traded on each exchange, weighted by the general trading volume over the past 24 hours. More on our methodologyhere.
When it comes to supply, it is worth noting that the calculation depends entirely on the token and the mechanics of its protocol. Although Bitcoin has a finite supply (21 million), most tokens are designed with a dynamic supply that increases over time. When calculating the market cap of a particular cryptoasset, it is the circulating supply that should be taken into account. Circulating supply is the number of tokens that are currently available on the market. Circulating supply is a better metric than total supply because it excludes coins that are reserved or locked.
Bitcoin BTC is the world’s leading cryptocurrency by market cap. In terms of market cap, Bitcoin has reached heights of over $300 billion. Most of the time, Bitcoin’s market cap accounts for 30% to 60% of the entire cryptocurrency market cap. To find Bitcoin’s market cap, locate the value in the “market cap” column associated with the Bitcoin record in the table above.
As with other cryptoassets, Bitcoin’s market cap is determined by multiplying its circulating supply by its current price. It is worth noting that, due to the finite supply of Bitcoin, at some point, circulating supply and total supply will be equal. At that time, Bitcoin’s market cap will have only one dynamic determinant, the price.
Bitcoin’s current circulating supply has already reached 85% of the maximum supply, which is fixed at 21 million.
Some investors view low market cap as synonymous with high profit potential. Similar to penny stocks (stocks priced below \$1), low-cap cryptocurrencies are often considered to be undervalued. That is why many market participants favor cryptocurrencies with low market caps. They believe these currencies have more room for price appreciation. Others view low market cap cryptocurrencies as ground-floor opportunities.
Whatever the reasoning, low market cap cryptocurrencies are popular investments. Here’s how to find low market cap cryptocurrencies on the Coins Marketcap platform:
Coins Marketcap lists cryptocurrencies with market caps as low as a few thousand dollars. However, you should avoid choosing an investment by market cap alone. Consider additional factors such as recent price changes, trading volume, circulating supply, and transparent volume, a feature unique to Coins Marketcap that shows the percentage of trading volume that occurs on reputable cryptocurrency exchanges.
Market capitalization is often used to indicate the value of a company or stock. It is calculated by multiplying the total number of shares outstanding by the price per share. Investors calculate the value of a cryptocurrency by multiplying its circulating supply by its current price. Though stock and crypto investors use the same indicator, the calculation differs in some respects.
To calculate the market cap of a company, multiply shares outstanding by the current price per share. Let’s take a minute to examine both components of the equation.
Shares outstanding reflects all stocks that are currently held by shareholders. It even includes restricted shares (held by corporate staff) and share blocks (held by institutional investors).
Price, on the other hand, is affected by internal factors such as profit, expected profit, and plans for growth. How investors perceive these factors influences supply and demand and determines the price of a stock.
To find the market cap of a cryptocurrency, multiply circulating supply by current price. Circulating supply is similar to shares outstanding but only includes tokens that are available in the market. It excludes coins that are reserved or locked.
The price of a cryptocurrency is usually calculated as an average of the spot price at which the instrument trades on leading exchanges. Cryptocurrency pricing in the context of index funds happens in a slightly more sophisticated way and is adjusted to include variation in trading pair prices.
Although market cap is used to value both companies and cryptocurrencies, there are differences in the way it is applied.
For instance, shares outstanding takes into account all issued shares, including those held by corporate officers and big investors. Circulating supply ignores reserved or locked coins. As a result, crypto market cap only includes assets that are available for trading. If crypto market cap followed the same logic as stock market cap, it would be based on total supply. A far more accurate calculation is achieved by using circulating supply. For more on the cons of using total supply, see the next question below.
Another difference is pricing mechanics. While most stocks have fixed issuance mechanisms, in the case of cryptocurrencies, many protocols are designed to expand continuously, thus inflating token supply over time.
In general, crypto market cap isn’t considered to be as accurate as stock market cap. One of the reasons is that, unlike the stock market, where a high market cap indicates a safe investment, in the world of cryptocurrencies, high market cap doesn’t necessarily mean that an investment is secure. Another reason is the fact that cryptocurrency comes with certain risks that don’t exist with stocks. To compensate, one must analyze market cap in a broader context.
The oldest “modern” securities market in the world is the Amsterdam Stock Exchange, which was founded in 1602 by the Dutch East India Company. The first cryptocurrency, Bitcoin, was launched in 2009. This goes to show how young the cryptocurrency market is compared to the stock market, which has had centuries to mature. We often make the mistake of copying stock market metrics and trying to shoehorn them into the world of cryptocurrencies. So is the case with market capitalization.
Market cap is applied to both stocks and cryptocurrencies, but there are differences in how the metric works in each case. In the world of stocks, market cap can reveal much about a company including corporate policies (for example, the issuance or repurchase of shares), management style, and operational scale. It is often used for its simplicity and relative effectiveness at assessing the quality of a stock.
When it comes to cryptocurrencies, however, market cap is not a useful basis for making an investment decision. In fact, many researchers describe crypto market cap as a deceiving indicator that is used only because it is simple.
Despite all that, market cap continues to be used as a leading indicator of cryptoasset quality – even by experienced investors. This is a mistake.
Stocks and tokens have very different characteristics. Stocks represent ownership of a company that creates economic and social value. Depending on the type of stock, ownership can provide a shareholder with the right to receive dividends, vote, and participate in procedures aimed at raising liquidity. Tokens represent participation in a network that may or may not generate value. Tokens do not guarantee claims on profits or participation in sales or ICOs. A token’s price is based not on real-world factors that influence supply and demand but on speculation about a project’s potential.
The truth is, while digital tokens are an exciting asset class, they are fundamentally different than stocks, and using the same indicator to analyze them can result in false or unrepresentative conclusions.
Another problem with crypto market cap is token inflation. With stocks, the total supply is fixed and can rarely be changed. The only way to change it is via a stock split. When it comes to tokens, however, an emission schedule can guarantee an instrument’s continual inflation. The increase in circulating supply that takes place over time leads to a higher market cap. But a higher market cap doesn’t necessarily mean that a project is doing well. It could just mean that there are more tokens in circulation. And vice-versa – a lower market cap doesn’t necessarily mean that a project is struggling. It may simply indicate that there are fewer tokens in circulation.
Crypto market cap was initially copied from the stock market. Although one of the factors, price, is present in both cases, there was a need to find a crypto metric that replicated the role of shares outstanding. The option that most resembled shares outstanding was total supply – all coins or tokens that currently exist and are either in circulation or locked. But this opened a loophole. Token owners could artificially inflate their market cap by pre-mining coins and locking them away. In response, total supply was swapped for circulating supply – all coins or tokens that are available for trading, excluding those that are reserved or locked. Circulating supply was intended to measure liquid supply. This raised new complications, namely how to define which part of supply could be considered liquid. Take lost coins, for example. Circulating supply is incapable of judging which coins are lost forever. Many critics of circulating supply suggest that the metric tends to overestimate the real supply on the market by including tokens that aren’t actually available.
Perhaps the most notable pitfall of the crypto market cap calculation is found in the mechanics of the cryptocurrency market. As the crypto market tends to be more volatile than the stock market, any significant buy or sell order can lead to a major price movement that will affect a project’s market cap. This is why we often use a metric known as redemption impact score which measures the likelihood of a large order affecting the price of a cryptoasset. A high redemption impact score indicates a less stable price while a low score indicates that an asset can maintain a relatively stable price through dynamic market activity. In reality, the majority of cryptocurrencies have high redemption impact scores.
This demonstrates how easily market cap can be manipulated when a coin has meager trading volume. The same occurs when a whale, or large investor holding a significant percentage of a cryptocurrency, decides to dump it all at once. The cryptocurrency’s price plummets, followed by its market cap.
Another way to illustrate how inefficient and even deceiving market cap can be is to imagine that you are launching a cryptocurrency project. Let’s say that the project has a total token supply of one billion. If you sell a single coin for $1, your project is now worth $1 billion.
Yet another downside to crypto market cap is its inability to measure the value of a project. Crypto market cap merely reveals the price that investors are willing to pay. It does not express value. Consider overnight price gains. If Tron TRX suddenly jumps 20%, does that mean the network has added new features or created real-world value in any way? Most of the time, the answer is no. Generally, it just means that people are willing to pay 20% more for the asset.
One last thing to bear in mind is that market cap is a reflection of the last price at which a cryptoasset traded. All previous trades were executed at different prices, and there is no guarantee that the last price will be the price at which the next trade executes. In fact, given the volatility of cryptocurrencies, price is unlikely to remain the same for very long.
Several alternatives have proven to be better indicators of cryptoasset quality.
The first is market cap’s upgraded version – fully diluted market cap (FDMC), which optimizes circulating supply by normalizing disparities in emission schedules. FDMC bases market cap calculations on a point in the future when an asset’s supply is comparable to the current supply. This normalizes emission schedules between assets to provide a more even comparison. However, FDMC has its flaws. The main one is its inability to deal with protocols designed to inflate supply in perpetuity. This means that no matter how distant the point in time, results may still be skewed. Another pitfall of FDMC is its assumption that prices will remain constant regardless of changes in supply.
Realized cap is another market cap alternative. It improves on circulating supply by excluding coins that have been lost or never activated. The indicator relies on unspent transaction output (UTXO), which is used by nodes to confirm the validity of transactions: if a transaction isn’t present in the database, it isn’t considered valid. UTXO helps avoid the problem of double-spending, or the spending of nonexistent coins. The only downside to realized cap is that it struggles to differentiate coins that are lost entirely from coins that are HODLed for the long haul.
This leads us to one of the most popular alternatives to market cap, market-value-to-realized-value (MVRV), which seeks to determine how over- or undervalued a particular asset is by analyzing where it is in its market cycle. MVRV is calculated by dividing market cap by realized cap. The concept is that market cap reveals market hype while realized cap indicates whether long-term, “serious” investors have entered the market. The addition of market cycle analysis enhances market cap and makes it more dynamic.
However, it is worth noting that crypto market cap, or any of its alternatives, represent a single way to evaluate the quality of a cryptoasset. There are other indicators that provide statistical data about the performance of cryptoassets and characteristics that might be detrimental to their long-term health.
To fully understand them, we must first look at the stock market. To find the real value of a stock, analysts calculate the net present value of a company’s projected revenues or dividends. Stock market analysts rely heavily on relative valuation models like price-to-earnings (P/E), which allows them to perform a fair comparison of two instruments. Cryptocurrency analysts have attempted to adapt this framework into metrics such as network-value-to-Metcalfe (NVM) and network-value-to-transactions (NVT).
Before delving into NVM, let’s define Metcalfe’s Law. The law is usually applied to online networks, but it is also considered useful in the world of cryptocurrencies. According to the law, the more people who use a network, the more utility each person derives. This also leads to a higher network value. Cryptocurrency analysts use NVM to determine how over- or undervalued an asset may be.
The next ratio, NVT, focuses on transaction volume. The ratio is similar to P/E in the stock market, where earnings act as a proxy for the value that each shareholder receives. In place of earnings, NVT substitutes network transactions and divides market cap by daily transaction volume. High NVT indicates that an asset’s market value surpasses its actual value. Low NVT indicates an undervalued network. NVT isn’t a flawless indicator. It’s not clear on which transactions should be considered, and the fact that there are on- and off-chain transactions increases the difficulty of estimating total transaction volume.
Another way to determine the liquidity of an asset is through buy support, which is the sum of buy orders at 10% distance from the highest bid price. Buy support helps explain how liquid a particular asset is and how many buy orders should be expected.
In addition to factors like price, circulating supply, liquidity, and trading volume, a network’s value can also be considered in terms of security, number of active contributors, and popularity on social media and Telegram.
Hopefully, this demonstrates that crypto market cap is an incomplete metric and that investors who rely on it exclusively do so at their peril. Although market cap is the most popular indicator of cryptoasset value, it is inefficient at estimating asset quality and struggles to provide actionable data. For these reasons, crypto market cap should always be backed by additional market metrics.
There are two ways to raise the market cap of a crypto project. Think of them as the “artificial” way and the “natural” way. Or, in other words – the “bad” way and the “good” way. The “bad” way exists because market cap is an inefficient indicator and prone to manipulation. We’re going to focus on positive (or “natural”) ways to raise a project’s market cap.
We have already examined the drawbacks of market cap. To summarize, it presents investors with a price rather than a value. While a higher price doesn’t necessarily indicate a higher value, a higher real-world value can increase the price of a token. This means that if you want to raise the price of a cryptocurrency, focus on increasing the value of the network. The first step is to attract as many active users as possible. The bigger the network, the more stable and attractive it is. Vitalik Buterin, the founder of Ethereum (ETH), listed several characteristics that increase the value of a network:
But how does a network reach a point where it attracts new users on a regular basis? Before a network attracts users continuously and naturally, it must meet certain prerequisites. Let’s take a look.
For a coin to be valuable, it must have a strong use case. A protocol must solve a real-world problem. It could tackle a market pain point or provide value to investors in the form of utility rights or as a medium of exchange on a platform. When a coin has a proven use case, there is an incentive for investors to buy, hold, or spend it. Consider Ethereum. For someone to develop applications on the network, he or she needs gas, which comes from the platform’s currency, ETH. The more developers there are, the bigger the demand for ETH, and the higher its price goes. The result: a higher network value and a higher market cap.
The aim of each cryptocurrency is mass adoption. That said, having real-world applications remains a difficult task for most crypto projects. It is a long and complicated journey, but it is the right path to follow. _ _ A coin that isn’t designed with a use case in mind is merely a tool for speculators, without any fundamental value.
In some cases, scarcity can result in increased value. The more rare an asset, the more expensive it becomes. This is certainly the case with Bitcoin (BTC). Its fixed supply means that its protocol cannot continuously issue new tokens, and many experts believe that the closer we get to the moment when all coins are mined, the higher the price will rise. This principle is valid mostly for coins with real-world use cases.
A large number of coins are designed with continuously expanding protocols. Although this leads to a higher market cap, it doesn’t really add value.
Meanwhile, other projects have an integrated “burning” mechanism to destroy a portion of their supply and increase the price of each coin. Scarcity is a useful tool for project owners who wish to control the market cap of their tokens, but it should be used appropriately.
Another way to boost market cap is to get listed on as many reputable crypto exchanges as possible. However, getting listed on exchanges cannot be the final goal. Many have policies to delist tokens that aren’t regularly traded. Therefore, it’s vital for projects to wait until they’ve gained some popularity and built an initial user base.
Projects that are listed on leading exchanges are usually considered more reputable and find it easier to attract investors. This then leads to higher liquidity, which, combined with a higher market cap, can turn a cryptoasset into a preferred investment opportunity.
For more information on how to get listed on an exchange and remain successful afterward, check our Cryptocurrency Exchanges FAQ.
Projects that hit roadmap milestones on time have a higher perceived value. A project’s openness to innovation and partnerships with proven third-party service providers can also raise credibility in the eyes of investors. Backing from well-known companies means more transparency and a more natural path for projects to establish themselves on the market.
Projects that have a stable or increasing base of followers are more attractive to investors: the higher the number of active contributors, the more progressive a network will become. Think of it like the snowball effect – the more people there are on a network, the more will be interested in joining.
One way to gauge a network’s number of users is its node count. Node count reveals how many active wallets exist on a network. The higher the number, the stronger the network is. This is why many investors use a market cap/node count ratio to determine whether a cryptocurrency is under- or overbought.
However, a high node count or a large community is not enough. Projects must also listen to their users, who can spot points of friction or recommend features that work well on other networks. The truth is, the market – or user behavior – can tell a project everything it needs to know.
There is nothing more harmful to a cryptocurrency than a bad reputation. Many projects doom themselves by dwelling in the shadows, where it’s impossible to earn user or investor trust. There have also been several cases of projects using whitepapers copied from other projects without changing anything but the organization and token name. Although some investors will fall for a bogus whitepaper, it is usually a recipe for disaster.
Investors also tend to avoid tokens that have a history of security breaches or protocol issues. Though this isn’t to say that a project can’t survive a hack. In fact, if a project shows that it overcame a security issue and bounced back stronger, it will reflect positively on the long-term vision of the project and the quality of the team behind it.
In summary, to raise the value and market cap of a cryptoasset, one should disclose everything about the project (owners’ backgrounds, roadmap, future plans, risks, etc.) and be as transparent as possible.
In recent years, the marketing of cryptoasset projects has become increasingly important. Competition forces projects to continuously improve their marketing communications and adopt different channels to discover new audience members.
Marketing doesn’t stop once a project goes live or gets listed on an exchange. If a project has a unique use case, there’s a chance that word will spread organically. However, in most cases, projects should spend at least some money on marketing and PR.
To determine the maximum cryptocurrency market cap, we need max values for price and circulating supply.
Generally speaking, the price of a cryptocurrency is determined by supply and demand. Unfortunately, demand is almost impossible to predict. For example, in the case of Bitcoin (Bitcoin), we can’t be sure at what price it will trade when it reaches its maximum supply of 21 million. It could be $50,000 or $500,000. Depending on outside factors, such as a ban on cryptocurrencies, it may even drop below its current price.
Estimating the maximum circulating supply of all cryptocurrencies can also be difficult. While some protocols declare a fixed supply, others are designed to continuously issue new tokens. Due to these unpredictable dynamics and the fact that new cryptocurrencies are developed daily, it becomes quite hard to predict how much cryptocurrency will be in circulation at any point in the future.
That said, to determine the maximum cryptocurrency market cap, one would have to find the maximum circulating supply of all available cryptocurrencies then multiply that by the prices of those currencies when their respective circulating supplies are at their maximums.
Let’s see what some of the field’s leading figures say. Changpeng Zhao (CZ), the founder of Binance, admitted that he sees cryptocurrencies growing 1000x more and surpassing a market cap of \$200 trillion. Vitalik Buterin, co-founder of Ethereum (ETH), stated that he sees room for growth, but added that it’s unlikely the cryptocurrency market reaches such levels. Who’s right?
Although we can’t know for sure, we can make some assumptions based on present information and expert projections. If the crypto market cap reaches \$200 trillion, it will mean that cryptocurrencies represent the majority of the world’s wealth. For this to occur, the world financial system would have to undergo a paradigmatic shift. Banks and high-net-worth individuals would have to drop current investments and stores of value in favor of cryptocurrencies. For now, this seems unlikely.
A survey by the World Economic Forum concluded that in 2027, 10% of the world’s GDP will be held in digital assets. According to statistics from the World Bank , global GDP was approximately $85.8 trillion in 2018. Long-term GDP forecasts project a 2027 GDP of $126 trillion. If the above estimates are correct, in 2027, $12.6 trillion of the world’s GDP will be stored in cryptoassets. These figures are far from CZ’s $200 trillion.
Let’s look at it another way. If the price per Bitcoin reaches $50,000 when the maximum supply is mined, its market cap will surpass $1 trillion. Considering that Bitcoin accounts for more than 60% of the crypto market cap, it means that the entire market will only be worth about \$2 trillion.
To get a broader perspective, let’s take a look at the world’s money supply and the way it is diversified. In 2017, the planet’s narrow money (coins, banknotes, and checking accounts) was worth about $36.8 trillion. According to data from the World Bank, the 2018 market capitalization for all listed domestic companies was $68.6 trillion. This means that explosive growth will be required for the market cap of cryptocurrencies to rival the market cap of checking accounts or stocks.
In theory, the only check on the cryptocurrency market cap is the world’s money supply. However, at least in the near-term, it’s unlikely the crypto market cap exceeds even a few trillion dollars.
Market capitalization is a popular indicator, but it doesn’t tell the whole story. Ranking cryptocurrencies solely by market cap ignores crucial statistical information and fails to inform investors about popularity, liquidity, and other important factors. Investors who base their decisions exclusively on market cap often end up disappointed.
Investors would be better off analyzing the time needed for a cryptoasset to trade its market cap equivalent. The rule of thumb is that if a cryptocurrency generates trading volume that is equal to or higher than its market cap, it is healthy and stable. Investors can get in and out of positions quickly and lock in trades at preferred prices.
Monthly trading volume for some of the more popular cryptocurrencies is similar to their respective market caps. This indicates stability and balanced interest from market participants. But if we look at Bytecoin (BCN), we find a major gap between transparent trading volume and market cap. As of this writing, it would take 212 months for Bytecoin’s monthly trading volume to reach its market cap. In the case of IOTA (IOT), it would take approximately 7 months. For Bitcoin (BTC) and Ethereum (ETH), it would only take 2.5 and 1.5 months respectively.
How might a coin with low trading volume get a high market cap? It often occurs when a cryptocurrency’s supply is high, but there aren’t many coins in circulation. This could be due to long-term HODLers who aren’t actively buying and selling.
A disadvantage of investing in low-volume cryptoassets is their inability to support big trades. A single trade could move a low-volume cryptocurrency significantly. This makes such assets unattractive to large investors who would struggle to execute major trades without experiencing slippage.