How much investment is ACTUALLY represented by the bitcoin "market cap"?

[Cassius]

Simple question, possibly a complicated answer. One for the economists?
Bitcoin's "market cap" is currently around $8 billion = $640/btc x 12.5 million btc in existence.
However, this does NOT mean that $8 billion has been poured into bitcoin. Almost all were purchased at lower prices (or mined). Many coins were bought at a very low price. As more were bought, the price rose, to where it is now. Basic supply and demand.
My question is: roughly what is the total amount of money that was spent in pushing the price up to where it is now? I imagine there's some sort of exponential graph or a standard model that illustrates this, but I've no idea what it would be.
I think this is relevant because it gives an indication of how much the price would rise given further investment, or how much it would fall when people sold.
That would give a much better metric of long-term prospects than I've seen just about anywhere else. It might allow us to say, If xx corporate investor came on board with $yy million, where would the price go?
Or we could just keep talking about the magic train that's going to take us to the moon...

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[HCLivess]

People cash in and cash out all the time, there is no way of determining it and I do not think it is relevant. As long as you get someone pay $1500 for BitCoin, it is worth $1500

[Cassius]

I disagree. Someone buys and the price rises. Sell and it drops. Buy and sell and it stays the same. Marlet cap of $8 bn does not mean $8 bn investment.
I bet it has something to do with calculus.

[LMGTFY]

This isn't exactly what you're after (apart from anything else it includes the alt coins) but might be useful? https://bitcointalk.org/index.php?topic=504367.msg5556119#msg5556119

[Cassius]

This isn't exactly what you're after (apart from anything else it includes the alt coins) but might be useful? https://bitcointalk.org/index.php?topic=504367.msg5556119#msg5556119

Thanks, that's a useful starting point. We're looking at an orders-of-magnitude difference, then. Rather than the train passenger theory of "if ten times as many people adopt bitcoins the price will go up ten times."

[porcupine87]

Imagine the volume is zero, nobody wants to buy and sell at the same given price. So I sell you one bitcoin for 10 000$. How high would the market cap be? Think of the 4000 new coins everyday. So the market cap grows by 2.4mio. So if no miner sells, no money is needed to raise the market cap.

-> The market cap has absolutely nothing to do with the total dollars for which people bought bitcoins. And anyway, when I buy a bitcoin from you fpr 620$, how much dollars are flowing into bitcoin? None! We just make a trade...

[Cassius]

Imagine the volume is zero, nobody wants to buy and sell at the same given price. So I sell you one bitcoin for 10 000$. How high would the market cap be? Think of the 4000 new coins everyday. So the market cap grows by 2.4mio. So if no miner sells, no money is needed to raise the market cap.

-> The market cap has absolutely nothing to do with the total dollars for which people bought bitcoins. And anyway, when I buy a bitcoin from you fpr 620$, how much dollars are flowing into bitcoin? None! We just make a trade...

But what price did you buy it at? Am I paying more than that? If so, money goes into the system.

[odolvlobo]

The amount that was paid for all the bitcoins in existence is found by determining what was exchanged for every unused output in the blockchain, somehow accounting for off-chain transactions.


Edit: Now that I think about it, even that doesn't work because simply moving money around gives false information.

[sunnankar]

I bet it has something to do with calculus.

Yes, particularly vector calculus and graph theory. You can figure it out 

[pening]

Market cap is a valuation, it doesn't count what has been invested.  Example, company X has 1m shares in issue and sells 100k shares for £10m.  The investment in company is £10m, the market cap is now £100m, because it is assumed the market would pay the same for the other 900k shares.  Now, if someone had previously brought 100k shares for £5million then the investment in the company is £15m, but the current market cap is still £100m.

To find out the total invested, as you'd have to track all the prices and volumes sold at each point in bitcoin's history. 

[aminorex]

We're looking at an orders-of-magnitude difference, then. Rather than the train passenger theory of "if ten times as many people adopt bitcoins the price will go up ten times."

Empirically the price regresses to n^2.26+k where n is the number of active addresses.  n^2 would be adequately explained by Metcalfe's Law.  Explain the sqrt(sqrt(n)) factor and you may win a Rijksbank prize in honor of Alfred Nobel.

Price tends to fundamental value over time because otherwise you can arbitrage.

If ten times as many people adopt bitcoin, the price, to a first order approximation, increases by a factor of 180, ceteris paribus.

[Cassius]

We're looking at an orders-of-magnitude difference, then. Rather than the train passenger theory of "if ten times as many people adopt bitcoins the price will go up ten times."

Empirically the price regresses to n^2.26+k where n is the number of active addresses.  n^2 would be adequately explained by Metcalfe's Law.  Explain the sqrt(sqrt(n)) factor and you may win a Rijksbank prize in honor of Alfred Nobel.

Price tends to fundamental value over time because otherwise you can arbitrage.

If ten times as many people adopt bitcoin, the price, to a first order approximation, increases by a factor of 180, ceteris paribus.

Good answer, this is what I was looking for. Thank you.

[Sindelar1938]

I don't think you understand what market cap is

It is aggregate value to aggregate investment

[Cassius]

I don't think you understand what market cap is

It is aggregate value to aggregate investment

$8 billion is not the total paid for every bitcoin in existence. Ask the people who bought at $1. This is what I'm interested in.

[Bit_Happy]

Is the net total amount invested even 1 Billion?
Probably not even close.

[Cassius]

Is the net total amount invested even 1 Billion?
Probably not even close.

I doubt it's anything like that much.

[Bit_Happy]

Is the net total amount invested even 1 Billion?
Probably not even close.

I doubt it's anything like that much.

...and it will not take too much for a huge move in either direction.

[BitOnyx]

Interest value is not easy to determine. It usually depends on various issues related rather high fluctuation of supply and demend on different moments of times. It is easy visible especially when we look on recent weeks.

[Taras]

 The market cap is hard to associate with the combined value of all coins. Hardly the same factors.

[Cassius]

The market cap is hard to associate with the combined value of all coins. Hardly the same factors.

No - this is exactly my point. The idea of market cap is quite misleading in this sense but it's often quoted as a metric for a company's value (or here, bitcoin).
Ultimately it doesn't matter, since what I'm interested in finding out is what would happen to the price of bitcoin if, for example:
a) a big investor dropped in $1 million
b) 1,000,000 people decided it would be good to keep $10 in bitcoins to buy things with

The simplest and most tedious way of approximating that I guess would be to multiply the closing price by the volume for each day of trading (ignoring the earliest days) and using that to project future values based on additional investment.

I think this would be a useful thing to do because most people's idea of what might happen to the value of their bitcoin investment is based on wishful thinking or extremely shaky reasoning.