https://blog.sia.tech/want-to-deflate-the-token-bubble-fix-the-market-cap-indicator-d50f7f1e1ec4The token world is getting crazy, but last week’s Gnosis ICO pushed us over the edge. Gnosis investors bought up approximately 4.2% of the total GNO token supply for $12.5 million (250,000 ETH), giving the project a market capitalization of $298 million (as of April 24).
To be clear: this means ICO investors valued Gnosis — an unproven platform that is yet to be launched — at about $300 million. Moreover, the GNO token does not have any actual purpose except to exchange for WIZ tokens at some point in the future.
We at Sia feel that this ICO insanity cannot continue in its current form — something must give. If the bubble bursts, it will inflict damage on every token, including those that are most reputable.
Many in the community want to slow and eventually stop this trend. We think that, while investors are by no means rational, they need access to the best possible information in order to make informed decisions. However, it is clear that investors are completely misvaluing most tokens. So what gives?
Our hypothesis: the market cap indicator is highly flawed.
Market cap is so powerful because it allows investors to quickly assess total valuation of an asset. A flawed market cap calculation means that investors are not able to properly value a token without doing extensive research.
There are two major inputs to market cap: total supply, which is required to properly calculate present market cap, and inflation, which can be used to predict future total supply and therefore future market cap.
Good points, I always calculate marketcap using total outstanding coins when I assess the current price of a coin.
The greater problem with marketcap though, is market manipulation of price and volume, but there's nothing anyone can do about that. So many top 40 coins today are really house of cards, and the best advice to noobies is read, study, learn as much as you can, don't believe the market, do the hard work and investigate coins yourself.