Are we measuring market cap wrong?

30 Dec, 2018
by Arthur Sillers
Are we measuring market cap wrong?

According to Crypto Briefing, the way we usually measure market cap might be misleading, and looking at BCH's market cap recently might bring into question the way that cryptotokens are stacked against each other.

The problem lies in how Coinmarketcap calculates the crypto market cap, which is a straight forward multiplacation of the latest market price times the total number of coins in existence. This means that not only could someone artificially inflate the market price by buying tokens at above market value to raise the average, but Coinmarketcap's algorithms don't take into account the lost or unused coins which are effectively out of the crypto economy.

Looking at BCH and BCH SV makes the problem apparent. For BCH, 9.3 Million coins have been active since it forked from BTC, compared to 9.8 Million BTC coins. This means that around half a million coins are still unclaimed, but still are counted for BCH's market cap. This is market distortion, but not as severe as that of BCH SV's, whose market cap is counted with 17 million additional coins which aren't yet in circulation.
Cryptobriefing also makes the point that for both BCH and BCH SV, there are a huge number of unactive wallets.

For both BCH and BSV, one out of every five are 'too lazy to split their wallets, even for free money,' by activating their wallets and gaining their coins after the split.
Cryptobriefing highlights the alternative measure of market value used by CoinMetrics, which it describes as 'transaction outputs in this measurement are valued according to the market price of their latest movement.'

CoinMetrics says the 'crux is to value different parts of the supply at different prices,' so that more weight is put on recent transactions, and utilizes changing prices and activity. It calls this measurement 'realized capitalization.' Of course, these measurements all tell their own story, and no measurement gives the full data on any coin. Nonetheless, it is important as a trader to question the source of any data, and understand exactly what it is telling you and what it isnt.

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Read more about: Bitcoin Cash (BCH)


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