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Author Topic: Bitcoin market cap  (Read 2365 times)
marcus_of_augustus
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April 29, 2011, 12:50:53 PM
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the common way of calculating market cap underestimates the true size. Why? Because it is already known that 21 million coins will be issued and the expectation of the market out over the next few years is that there will be at least several more million in circulation than issued thus far. So conservatively, the market has already priced in total coin issuance to at least Jan 2013, i.e. 10.5 million coins.

Using current exchange rates BTC 1 = U$ 2.5 then current market cap is at least around U$25 million already.

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tomcollins
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April 29, 2011, 12:52:35 PM
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the common way of calculating market cap underestimates the true size. Why? Because it is already known that 21 million coins will be issued and the expectation of the market out over the next few years is that there will be at least several more million in circulation than issued thus far. So conservatively, the market has already priced in total coin issuance to at least Jan 2013, i.e. 10.5 million coins.

Using current exchange rates BTC 1 = U$ 2.5 then current market cap is at least around U$25 million already.

No idea why you chose 10.5 million coins.  Those coins don't exist, they aren't "priced in".  If you think I'm wrong, at least try to explain why you chose that number instead of 21 million or whatever.
ribuck
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April 29, 2011, 12:55:49 PM
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When a company is listed on the stock exchange, we don't consider its "market cap" to include shares that have been authorized but not yet issued.

But yeah, "market cap" is not quite the right term to describe the number of issued bitcoins times the value of one bitcoin.
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April 29, 2011, 12:58:04 PM
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And besides that, there will be never 21m coins. Some of them are already lost forever (destroyed wallets etc) and nobody knows how many.

marcus_of_augustus
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April 29, 2011, 12:58:50 PM
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You must have missed the word conservatively .... I just chose the point where half the coins would be issued, that is 'only' 20 months away and therefore in the near time horizon. I could have used 21 million but I don't think the market is pricing that far out into the future (2030) ... so conservatively using the near time horizon and easy point to do rough back-of-envelope calc. to demonstrate it is probably much more than the current coins times market price ... i.e. $14 mill. Rough proof by demonstration.

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April 29, 2011, 01:22:09 PM
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You must have missed the word conservatively .... I just chose the point where half the coins would be issued, that is 'only' 20 months away and therefore in the near time horizon. I could have used 21 million but I don't think the market is pricing that far out into the future (2030) ... so conservatively using the near time horizon and easy point to do rough back-of-envelope calc. to demonstrate it is probably much more than the current coins times market price ... i.e. $14 mill. Rough proof by demonstration.

But they don't exist now.  Why not 12 million or 10 million or 15 million?  You just picked a number.
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April 29, 2011, 07:05:02 PM
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the common way of calculating market cap underestimates the true size. Why? Because it is already known that 21 million coins will be issued and the expectation of the market out over the next few years is that there will be at least several more million in circulation than issued thus far. So conservatively, the market has already priced in total coin issuance to at least Jan 2013, i.e. 10.5 million coins.

Using current exchange rates BTC 1 = U$ 2.5 then current market cap is at least around U$25 million already.

No idea why you chose 10.5 million coins.  Those coins don't exist, they aren't "priced in".  If you think I'm wrong, at least try to explain why you chose that number instead of 21 million or whatever.

They are definitely priced in to some extent. Imagine what would happen if we all looked into the code and noticed that there will actually be 121M coins eventually. If that would change the current price (and it would) then future coins are influencing current prices. Otoh, it all 21M were released today it would also have an effect. So it isn't as if all coins are essentially being considered available, but they are factored in somehow.

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tomcollins
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April 29, 2011, 07:07:43 PM
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the common way of calculating market cap underestimates the true size. Why? Because it is already known that 21 million coins will be issued and the expectation of the market out over the next few years is that there will be at least several more million in circulation than issued thus far. So conservatively, the market has already priced in total coin issuance to at least Jan 2013, i.e. 10.5 million coins.

Using current exchange rates BTC 1 = U$ 2.5 then current market cap is at least around U$25 million already.

No idea why you chose 10.5 million coins.  Those coins don't exist, they aren't "priced in".  If you think I'm wrong, at least try to explain why you chose that number instead of 21 million or whatever.

They are definitely priced in to some extent. Imagine what would happen if we all looked into the code and noticed that there will actually be 121M coins eventually. If that would change the current price (and it would) then future coins are influencing current prices. Otoh, it all 21M were released today it would also have an effect. So it isn't as if all coins are essentially being considered available, but they are factored in somehow.

Sure, you can find a present value of them now, I suppose.  Just picking a random date and saying "these are priced in, these are not!" is weird to me.

If those extra 100M coins weren't going to be produced for some time, then it wouldn't matter too much, but if they came tomorrow, it would be huge.
marcus_of_augustus
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April 30, 2011, 02:10:48 AM
 #9


Of course I just picked a number, it was a conservative estimate of how many coins that haven't been issued yet but the market is fully expecting them to be issued in the near future.

Your turn, pick a good number of bitcoins that you think market has priced in?

I say that they have priced in probably more, maybe a lot more than 10.5 million but I just chose that as a conservative estimate and calculated market cap based on that ... I'm a bit lost how that is mysterious to you?

I don't think the market has priced in all 21 million but I do think it has priced in AT LEAST 10.5 million (the point at which the block reward to miners halves to BTC 25 per block), probably more ...

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April 30, 2011, 03:21:56 AM
 #10

Because it is already known that 21 million coins will be issued and the expectation of the market out over the next few years is that there will be at least several more million in circulation than issued thus far.

If they are issued and sold with no new demand, the price will fall.  If they are issued and sold with (increasing) demand that (thus) matches demand for the current coins, the price will stay the same, and the "market capitalization" will increase.

What you're saying is like arguing that the value of "the banana economy" includes bananas that have not yet been grown yet because we know that some more are growing and will be ready soon.  If that happens but nobody new wants bananas, the price of them falls.  To say it more intuitively, if nobody wants the new bananas, they have no value, and you can't assume that because there is demand for the current bananas that there will be equivalent demand for the new ones.

The market capitalization is actually likely a significant overestimate of the Bitcoin economy because the clearing price does not reflect the value of the entire economy; the whole economy would not clear at the current price.  Of course, if all sold today, Bitcoins would have a substantially lower value than the "market capitalization" figure suggests.  It is an enticing "marketing" figure but has probably misled many people.

Good to see you haven't been 'fooled' into buying worthless bitcoins (or bananas or carrots) yet ... carry on.

Were you around last time a tradeable virtual commodity was monetised? No did not think so, no one was.

We are off the charts here so trying to sound knowledgeable just leaves anybody looking stupid quite quickly (they probably were to begin with but managed to hide it with long words and fine sounding fluffy arguments). A little humility will take a long way when venturing into unchartered territory.

marcus_of_augustus
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April 30, 2011, 03:50:27 AM
 #11

Good to see you haven't been 'fooled' into buying worthless bitcoins (or bananas or carrots) yet ... carry on.

Were you around last time a tradeable virtual commodity was monetised? No did not think so, no one was.

We are off the charts here so trying to sound knowledgeable just leaves anybody looking stupid quite quickly (they probably were to begin with but managed to hide it with long words and fine sounding fluffy arguments). A little humility will take a long way when venturing into unchartered territory.

I love when people arrogantly call for others to display humility.  If you read what I said more carefully, you wouldn't have interpreted it (as you plainly did) as some sort of attack on Bitcoins or their market value.  You have no idea what I've bought or sold, and I was plainly not making a recommendation to do either.  I'm not an investment advisor (at least not formally), and I have no interest in disclosing my personal financial positions to you.

I'm sorry if you're claiming you can't grasp simple economic language, but nothing I said was "fluffy," and what "long words" did it use?  Honestly, it wasn't even "fine sounding."  Smiley  I admit I'm used to writing for an educated academic audience, but it's not hard to understand what I said and to see that it's correct on its own terms.  Making up numbers and calling them "market capitalization" is what lacks humility.  If you want to say "I think Bitcoins will rise against the US Dollar," say that instead; don't say something that's baseless, logically confused, and misleading.

Maybe if I try again we can communicate like adults.  "Market capitalization" itself -- even when it's not the figure you conjured yourself -- is sometimes a misleading figure even in its traditional contexts; it doesn't describe, for example, how much capital a company has access to.  I recently owned a stake of a company that went public and, as a result, had a market capitalization of $2 billion; however, they raised only $50 million in the IPO.  The $2 billion value is useful when calculating the value of individual shareholders' stakes; it's not useful in calculating the size of the company's "economy" in the way the term is applied to Bitcoin.  Note, in case it's still confusing, that a single trader on Mt. Gox can increase or decrease the "market capitalization" by several million dollars by committing only several thousand dollars.  You can't read into the figure properties that it won't bear, at least without making profound logical and mathematical mistakes.

I've been reading you on other threads and as far as I am concerned ~:RETRACTED:~ you are not even wrong, academic educated or otherwise ... I only read the first paragraph above and gave up ... 's' you are on my scroll list, the first guy on bitcoin forum to make it there, congratulations.

theymos
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April 30, 2011, 04:33:28 AM
 #12

Adding more coins just makes an arbitrary market cap value even more arbitrary, IMO.

Maybe I'm just out of touch with what it's like to be on internet message boards

Yes. Your posts are too long for a forum. No one reads them completely, which causes misunderstandings. Using smaller paragraphs would help, but it's even better to increase the information density of your posts. For example, including just the last paragraph of your last long reply above would be better. The personal attacks can be reduced to a sentence or two, preferably placed at the end.

The differences in cultures is an interesting subject. Possibly mailing lists are based more on conversations between people, whereas forums are more about communicating ideas to the wider community.

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marcus_of_augustus
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April 30, 2011, 04:55:33 AM
 #13

Quote
Adding more coins just makes an arbitrary market cap value even more arbitrary, IMO.

Quite,the 'market cap' figure on BitcoinCharts is arbitrary. How on earth is it possible to quantify the initial monetisation phase of a tradeable virtual commodity? ... it was just a little mind exercise that got taken too seriously I fear.

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