Market capitalization is the blockchain equivalent of an online horoscope. It's a total mess, but it has a strong appeal. And despite repeatedly underlining the errors of the metric, we are not immune to fix ourselves: every time there is a drop, we check the charts for the last launch.
But the new data suggest that the market capitalization of cryptocurrency could finally be a worthy metric. It's not as intuitive as the method used by Coinmarketcap, but it does not even seem to be a fat.
Here is the problem with market capitalization, at least when it comes to evaluating the value of a currency. When CMC calculates the market capitalization of Bitcoin, it makes a simple multiplication: the last market price multiplied by the total number of existing coins.
This means that market capitalization is as precise as exchange prices: in other words, not at all.
If you were John McAfee or Roger Ver, losing bets, all you would need to do is buy a few satoshis for a hundred dollars each on a big exchange – and soon! Your currency has a multi-trillion dollar market capitalization!
And this does not even include the vast number of lost, missing or simply dormant coins that do not affect the crypto-economy.
The problem is worse for forks: their market capitalization includes everything possible coins, even those that have not been claimed. For Bitcoin Cash (BCH) this is not a big deal: 9.3 million BCHs are active from block 478558, when the fork occurred, compared to 9.8 million BTC coins.
But it is a huge distortion for Bitcoin SV, where the capitalization is calculated on the premise that there are 17 million BSV coins waiting for just the right buyer. Actual data calculated through the Blockchair API show that, of the unspent outputs existing on BSV at the time of the fork, only 4.2 million were actually activated. BCH did not do much better, with 5.4 million coins spent. *
This means that one in five hackers BCH is too lazy to split their wallets, even for free moneyif that free money comes from Craig Wright. The count of the number of active addresses makes the same point in a different way:
Active addresses for BTC (red), BCH (blue) and BSV (orange).Except for two peaks, the number of active BSV portfolios varies between a quarter and a half of the BCH activity, and both have been minimized by BTC. With less than a quarter of the possible currencies activated, the "true" market capitalization of BSV should be between Maker and NEO.
CoinMetrics realizes the problem
Fortunately, we are not the only ones who find the CMC data … incomplete. CoinMetrics, which broke the history of the invisible BTCP Premine, carried out an accurate measurement of blockchain activities and invented a new measure for cryptographic value.
The result is "Capitalization achieved" a substitute for market capitalization that attaches greater importance to recent transactions than older ones.
The outgoings of the transactions to this extent are valued according to the market price of their last movement. According to CoinMetrics, "Its crucial point is to evaluate different parts of supplies at different prices, instead of using daily closing as market capitalization does."
The result is similar to this:
This is still an imperfect metric – the weighting system has been slow to catch up with the latest declines, giving BTC an unlikely high capitalization of $ 80 billion.
So why is that?
The metric provides historically weighted capitalization for each Bitcoin transaction based on the last movement of each coin. For example, Satoshi coins are valued at almost $ 0, corresponding to the price when they were mined, but a recent bitcoin movement will be valued at current prices. The realized capitalization has some distortions from the more traditional metric, but injects a measure of effective economic activity into cryptocurrency movements.
According to this metric, the scarab on the right is Bitcoin SV – with a real value between Doge and Bitcoin Gold, about $ 500 million – far from CMC's suggestion that its market capitalization is $ 1.5 billion.
At the moment it only works for UTXO registers, like Bitcoin, but Coinmetrics says it can be generalized to other blockchains "With some effort" For currencies based on accounts such as XRP or Stellar, the capitalization metric is likely to omit long-term escrow and non-released tokens.
As always, caution is needed, especially when it comes to new metrics. Coins in a custody center could change hands several times without changing their blockchain address and some users could move coins between multiple portfolios without transferring ownership.
However, the data seem to confirm what most of the encrypted world already knew: that BSV is exactly too long a letter. Despite having a nominally high market capitalization, any serious metric would put Satoshi's Vison far beyond the top ten.
The author is invested in Bitcoin, Bitcoin Cash and Bitcoin SV, which are mentioned in this article.
*Special thanks to Nikita Zhavoronkov from Blockchair for helping us with the API.