The Bitcoin capitalisation calculation

[Jet Cash]

As I understand it, the Bitcoin market capitalisation is based on the number of coins allocated. Some say it is based on the number of coins in circulation, but I don't see any way to calculate that total. I believe that the calculation should be based on the total in existence, ie 21 million.

When the Bitcoin genesis block was created, 21 million Bitcoin came into existence, and over the years these have/are being allocated as mining rewards. This is the total market, and the fact that some Bitcoin has yet to be allocated is not relevant to the calculation of the market capitalisation in my opinion. Basing the calculation on a steadily increasing number of coins gives a false reading.

Do you agree with me, or have I misunderstood the situation?

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[jackg]

Nah it should be based on 21 million.

Although, coins don’t technically go when their private keys are deleted, they can still potentially be brute forced but a nice number is the 21million. If you’re trying to make it as a comparison to something then the other number of the total in circulation might be better but if you’re just quoting the market cap and that’s is then the 21 million is the one to go for imo.

[r1s2g3]

I do not agree  that calculation should be done on 21 Million. Actually  you are contradicting your own below statement
" I believe that the calculation should be based on the total in existence, ie 21 million."

21 Million is not the current existence  and 21 million is just a theoretical ideal figure that will never be achieved in real life. ( that calculations are already explained by gmaxwell ).


So it is ok to take market capitalization as "Bitcoin currently exist" * Price of 1 bitcoin.

[Jet Cash]

My understanding is that the 21 million was the total initial creation, and miners are rewarded by allocations from that pool. As Bitcoin is a virtual asset, then it can be difficult to agree on this, but I believe that this is the practical application of the concept. If you could just create new Bitcoin, then there would be no limit to the creation. They have to be removed from a previously created pool in my opinion.

[paxmao]

IMHO, MarketCap=Number of circulating (coins, tokens,...) x unit price

Let me explain why: The main use I find of the MC parameter is to figure out the total valuation of a project by the market. The market cannot place a value on items that cannot be bought, held or spent, since these are non-circulating and MC should not change with the number of tokens. Non-circulating may include those tokens that are no longer accessible or blocked. Note that non-circulating and circulating amounts can vary as tokens are unlocked, burnt, lost, etc...

And here comes the reason why this definition works for me:

case A: circulating supply is 100, price is 1. What would be the effect of unlocking 100 coins? MarketCap does not vary, as the market has the same valuation of a project irrespective of the number of "shares" in which you decide to divide. MarketCap before and after remains constant, thus the effect of the unlock will be halving the value of all coins or tokens. This aligns well with the real cases.

case B: 100 of CS, price is 1. 50 units are burned. MC is constant, unit price doubles.

case C: 100 of CS, 50 became lost (i.e. Satoshi´s wallets?), MC is constant and unit price doubles.

I hope I am making my view clear, all these cases align well with what happens (generally) in reality... at least in stock markets.

[r1s2g3]

I tried to find out about that calculation, look like with time my memory got some corruption. But anyway I am trying to refer these posts.

The rule states that it can't be MORE than the current block subsidy, but it can certainly be less.
For example this Coinbase transaction has an output of 0, while this one is 0.01BTC less than the block reward
In cases like this the bitcoins are lost forever.

And with "destroyed" coins, they don't even exist on the blockchain any longer.

I think you should read both the topics, might you find something interesting.

[Jet Cash]

>..<

That is certainly an interesting metric, and it would give an indication of the velocity of Bitcoin. I don't think it is possible to calculate it though, as there does not seem to be a way to discover the total of coins lost or burned, or even those that are in long term storage. If one excludes long term savings, then that would be the equivalent of excluding founder shares from a company's total capitalisation, and that would not be accurate in my opinion.

The real problems for me are the factors other than market price which affect the Bitcoin dominance calculation. Varying it every time a new block is discovered would seem to be misleading as a part of historic comparisons. However, we do not consider the quantity of unmined gold when considering the economic dominance of gold. It is this conceptual conflict that prompted me to start this thread.

[paxmao]

>..<

... I don't think it is possible to calculate it though...

... Varying it every time a new block is discovered would seem to be misleading...

True, it is impossible to calculate exactly for Bitcoin and perhaps for coins that have a long track. We would need to figure out a way of inferring an approximate number.

The analogy with gold is pure gold (ehem). I think that the "real" dominance of BTC cannot be determined accurately, unless we ignore the BTC that is lost and consider that it is "potentially circulating". That would give a good dominance number I think.

I think that re-evaluating in every block is conceptually correct, as the circulating supply does increase. In theory, if demand were static and MC remains equal BTC price should lower and that is fine, is just accounting for the inflationary effect of the new circulating bitcoin.

[bitmover]

The number used  now in coinmarketcap is around 17,360 million circulating supply.

That's because 17.360 btc were mined so far, so 17.360mi btc exist.
 I made a topic about it when the 17millionth btc was mined, sort of btc anniversary.
https://bitcointalk.org/index.php?topic=3799898.0;prev_next=next

I think that numberbeing used to calculate capitalization may be incorrect (because of lost btc),... However, that's how it's calculated in stock market too.

Lots of people who own shares of companies in stock market dies every year and those share become "dormant"  for years or even lost forever too. And they also use that metric there.

It's innacurate but that's what we have now.. .

[Carlton Banks]

My understanding is that the 21 million was the total initial creation, and miners are rewarded by allocations from that pool. As Bitcoin is a virtual asset, then it can be difficult to agree on this, but I believe that this is the practical application of the concept. If you could just create new Bitcoin, then there would be no limit to the creation. They have to be removed from a previously created pool in my opinion.

No that's not how it works in the code.

The code handles this in one line. It defines the block reward as 50 BTC, then halves that for each whole number for which the current block height is divisible by 210,000. There is no pool.

Current block height is ~ 548,000. If you divide that by 210,000 you get  ~ 2.6 , and if you take that as a whole number, it's 2. Divide 50 BTC by 2, and you have 12.5 BTC, which is the current block reward.

[jackg]

My understanding is that the 21 million was the total initial creation, and miners are rewarded by allocations from that pool. As Bitcoin is a virtual asset, then it can be difficult to agree on this, but I believe that this is the practical application of the concept. If you could just create new Bitcoin, then there would be no limit to the creation. They have to be removed from a previously created pool in my opinion.

No that's not how it works in the code.

The code handles this in one line. It defines the block reward as 50 BTC, then halves that for each whole number for which the current block height is divisible by 210,000. There is no pool.

Current block height is ~ 548,000. If you divide that by 210,000 you get  ~ 2.6 , and if you take that as a whole number, it's 2. Divide 50 BTC by 2, and you have 12.5 BTC, which is the current block reward.

It’s 50 div 2²

[Jet Cash]

The concept is a bit ambiguous because Bitcoin is a virtual asset. I think of the 21 million as part of the pool, because it is an absolute limit, and one the pool is empty, no more coins will be available for mining rewards.

[Carlton Banks]

The concept is a bit ambiguous because Bitcoin is a virtual asset. I think of the 21 million as part of the pool, because it is an absolute limit, and one the pool is empty, no more coins will be available for mining rewards.

It's not the absolute limit unless Bitcoin survives until it's reached. The absolute maximum right now is the total mined less the total lost/burned.