Cryptocurrency Market Capitalizations are misleading

[alyssa85]

It really annoys me that Ripple is listed in the top ten cryptocurrencies by Market Cap, when most of the coins issued sit in Ripple labs, and very little is actually held by the general public, and very little is actually used.

I can't wait for other coins to pass them, so we stop hearing about Ripple.

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[Hydrogen]

There's an alternate school of thought which says: cryptos market cap devaluing wipes out the "weak" money and "weak" investors leaving behind stronger and better adapted investors and money, resulting in a more powerful and robust crypto market. (There are memes which parallel these ideas, that are jokes. The one about alcohol wiping out weak brain cells, leaving only the stronger and fitter brain cells behind is lols.)

On a more serious note. Even in commodities and equities markets, there will be many who argue intermittent price corrections, such as cryptos recent decline, can be healthy for markets and the economy. The massive decline of the ICO market could benefit crypto over the long run. The type of large scale devaluation which hit ICO's recently wiped out many of the scammy and overvalued investments. When that occurs, the more legitimate and higher quality investments survive. This could benefit ICO's over the long term. Bitcoin's recent decline might also do away with some of the lower quality or scam based operations, leaving behind better opportunities and a safer more reliable market. It may not be difficult to find examples of value increasing as market cap decreases.

[dado7]

There's an alternate school of thought which says: cryptos market cap devaluing wipes out the "weak" money and "weak" investors leaving behind stronger and better adapted investors and money, resulting in a more powerful and robust crypto market. (There are memes which parallel these ideas, that are jokes. The one about alcohol wiping out weak brain cells, leaving only the stronger and fitter brain cells behind is lols.)

On a more serious note. Even in commodities and equities markets, there will be many who argue intermittent price corrections, such as cryptos recent decline, can be healthy for markets and the economy. The massive decline of the ICO market could benefit crypto over the long run. The type of large scale devaluation which hit ICO's recently wiped out many of the scammy and overvalued investments. When that occurs, the more legitimate and higher quality investments survive. This could benefit ICO's over the long term. Bitcoin's recent decline might also do away with some of the lower quality or scam based operations, leaving behind better opportunities and a safer more reliable market. It may not be difficult to find examples of value increasing as market cap decreases.

A similar thing happened with a recent cash flow crisis in our country. Inability to service their obligations forced many companies to shut their doors forever. However, those that remained were mostly those companies that settle their debts on due dates. This made our market much easier to work in. It's still far from perfect though.

[JHB3]

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.

you are totally right. Only a few people understand that..

They keep saying: "But look how much money left the market" and "new money has to flow back into the market". The only thing it takes are thin order books and some whales who have ambitions to start a new bull run. Orderbooks are already that thin, that it takes literally only a few btc to take some coins to x5 or more.

[Thamon]

One aspect of cryptocurrencies seems to be misleading thousands of investors every day. their impressive U$ dollar market capitalization. We noticed that this metric is used heavily by investors, but there’s an elephant in the room.. the numbers you see are fake.