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Serious question... how does ${Price of 1 coin} * ${Total supply of coins} = ${Market cap}? Not all coins are going to sell for the peak price ... it seems lik

by _1 9y ago

Serious question... how does ${Price of 1 coin} * ${Total supply of coins} = ${Market cap}? Not all coins are going to sell for the peak price ... it seems like a moot metric at best.

kevinmannix 9y ago
I've thought the same and chalked it up to 1) lack of a better way to easily gauge the ballpark value and 2) better headlines. I believe that's the way public company market caps are calculated as well, though with less of a chance of going to absolute zero.
GuB-42 9y ago
It represents the value right now. It can of course vary due to supply and demand. If everyone decides to sell, price will go down, but we can also make the opposite argument. If I were to buy all coins in the world, I would probably have to pay much more due to the increased demand.
- FabHK 9y ago
  As an insightful commentator pointed out above, if you buy all BTC, they'll be basically worthless.
_pmf_ 9y ago
> Not all coins are going to sell for the peak price ... it seems like a moot metric at best. reply Oh, bitcoin users will be very disappointed that they do not own the solar system after all.
deadbunny 9y ago
The same way ${price of stock} * ${total supply of stocks} = ${market cap}
- lordCarbonFiber 9y ago
  The classical wisdom is ${price of stock} is at least somewhat correlated with ${price of company assets} + some speculative modifier for future performance. The cryptocoins only have the latter.
  - hnarn 9y ago
    That's because cryptocoins are currency and stocks are parts of any kind of enterprise that does something to add value to the material world around us. People seem to have a hard time understanding the difference between "The US Dollar" and "The Kraft Heinz Company".
  - jerf 9y ago
    We can also see there is a real sense in which market cap matters. There are many cases where companies acquire other companies that are publicly traded in one shot. When that happens, the offer is generally somewhere in the ballpark of the market cap. If someone wanted to acquire "all BitCoin", there isn't an equivalent way to use the "market cap" of BitCoin to mean anything. (If you want to observe that value is thus still relative and that the people making the offer are themselves influenced by the market cap, go nuts. However, if you intend "valuations are relative anyhow" as a selective attack on the realness of stock market caps but then "accidentally" forget to apply the same logic to cryptocurrency market caps, I'll pass.)
  - jo909 9y ago
    I don't think there is much wisdom in factoring in the price of company assets in its stock price. That's just obvious. That's like selling your car vs selling your car with 10.000 dollars in the trunk. Obviously it affects what I'm willing to pay. But the important question is still the worth of the car - which is very complicated to determine objectively and with f.e. classic cars nearly pure speculation.
- JumpCrisscross 9y ago
  The theoretical basis for that metric, with stocks, is the whole being worth at least as much as the sum of its parts. That is, a buyer of every last share of Apple stock lands up owning a company throwing off $60+ billion a year [1]. A buyer of every last Bitcoin ends up with nothing. I can't think of a non-currency asset that shares this property. For currencies, measuring the size of the monetary base can be meaningful. But it's not as meaningful as market capitalization is to individual equity securities. Epistemologically, we cannot choose good summary metrics for Bitcoin until we know what it's useful for. [1] https://www.sec.gov/Archives/edgar/data/320193/000032019317000070/a10-k20179302017.htm https://www.sec.gov/Archives/edgar/data/320193/0000320193170...
  - FabHK 9y ago
    A crucial difference, and your hypothetical captures it very nicely. With Apple, the price reflects future income potential. Thus, if holders of Apple shares sell 10% of the outstanding stock, that should not affect the price much, in theory, except to the extent that it reveals new information about the firm. Sure, the price will drop, but if it drops much, investors will come in and pick up the cheap shares. With BTC, the value comes solely from the value people assign to it (unlike Apple!), and when people sell it, that is ipso facto evidence that it's less valuable (unlike Apple). Thus, if holders of BTC sell 10% of the outstanding coins, there's really not much to support the price (except maybe painting the tape and freshly printed tethers), and it could conceivably collapse completely. > I can't think of a non-currency asset that shares this property. Good point. I was thinking of gold, but surely if someone purchases all the world's gold, it'll be worth quite a lot, because it does have intrinsic uses. With BTC, people could trivially switch to any fork.
  - jo909 9y ago
    But I think it is also clear that the theoretical buyer of every last share of Apple stock does not end up with a company "worth" $900 billion (it's current market cap). That metric and measurement of value just vanishes if there is no market any more. How you measure its "worth" from now on is completely arbitrary and debatable. Say he owns them all and then starts an auction for one share every day. Could you still take the price of that one share per day to determine a total value of the company? That is not in opposition of your argument. (Crypto)currencies are vastly different to stock in an established and profitable company. But also f.e. Uber stock is very different from Apple stock.
karrotwaltz 9y ago
Also, the amount of coins unaccessible due to lost private key or forgotten password must be significant.
VMG 9y ago
It is, but people pumping these coins do not care.
cup-of-tea 9y ago
Well they will sell for at least that, so are you saying the market caps given are too low?
- soup10 9y ago
  it's like if a vc invested at a big valuation for a tiny stake. it's impressive, but nobody knows if that valuation will hold up.
  - cup-of-tea 9y ago
    But this isn't that is it? These are based on trades that probably took place in the last few seconds.
    - soup10 9y ago
      my point is the most recent trades are a small sample of financial activity which is then extrapolated to make the market cap metric. and i think it's not as meaningful a metric as it would be with stocks since its a much more volatile asset class
      - cup-of-tea 9y ago
        Yeah, but then maybe there should be some metric to measure volatility as well. Even some stocks are going to be more volatile than others. And it's not like stocks have never been outrageously overvalued before...
cup-of-tea 9y ago
They will all sell for that price if supply and demand are equal. Sellers will ask for at least as much as the value of the last trade, buyers will offer no more than the value of the last trade. When there is an imbalance then either buyer or seller must compromise by offering more or asking less, repsectively. These figures are based on trades that have happened in the last few seconds so it's more realistic than in some other markets.
zodiac 9y ago
Becaude you can't observe directly how much every person really values the assert, only the market-clearing price. No serious economist/trader thinks that 5% of the supply can be bought or sold for 5% of the market cap. This is exactly the same whether the assets are commodities, cryptocurrency or equity yet we still talk about market cap as a useful proxy.

by _1 9y ago

Serious question... how does ${Price of 1 coin} * ${Total supply of coins} = ${Market cap}? Not all coins are going to sell for the peak price ... it seems like a moot metric at best.

kevinmannix 9y ago

I've thought the same and chalked it up to 1) lack of a better way to easily gauge the ballpark value and 2) better headlines. I believe that's the way public company market caps are calculated as well, though with less of a chance of going to absolute zero.

GuB-42 9y ago

It represents the value right now. It can of course vary due to supply and demand. If everyone decides to sell, price will go down, but we can also make the opposite argument. If I were to buy all coins in the world, I would probably have to pay much more due to the increased demand.

FabHK 9y ago
As an insightful commentator pointed out above, if you buy all BTC, they'll be basically worthless.

_pmf_ 9y ago

> Not all coins are going to sell for the peak price ... it seems like a moot metric at best. reply Oh, bitcoin users will be very disappointed that they do not own the solar system after all.

deadbunny 9y ago

The same way ${price of stock} * ${total supply of stocks} = ${market cap}

lordCarbonFiber 9y ago
The classical wisdom is ${price of stock} is at least somewhat correlated with ${price of company assets} + some speculative modifier for future performance. The cryptocoins only have the latter.
- hnarn 9y ago
  That's because cryptocoins are currency and stocks are parts of any kind of enterprise that does something to add value to the material world around us. People seem to have a hard time understanding the difference between "The US Dollar" and "The Kraft Heinz Company".
- jerf 9y ago
  We can also see there is a real sense in which market cap matters. There are many cases where companies acquire other companies that are publicly traded in one shot. When that happens, the offer is generally somewhere in the ballpark of the market cap. If someone wanted to acquire "all BitCoin", there isn't an equivalent way to use the "market cap" of BitCoin to mean anything. (If you want to observe that value is thus still relative and that the people making the offer are themselves influenced by the market cap, go nuts. However, if you intend "valuations are relative anyhow" as a selective attack on the realness of stock market caps but then "accidentally" forget to apply the same logic to cryptocurrency market caps, I'll pass.)
- jo909 9y ago
  I don't think there is much wisdom in factoring in the price of company assets in its stock price. That's just obvious. That's like selling your car vs selling your car with 10.000 dollars in the trunk. Obviously it affects what I'm willing to pay. But the important question is still the worth of the car - which is very complicated to determine objectively and with f.e. classic cars nearly pure speculation.
JumpCrisscross 9y ago
The theoretical basis for that metric, with stocks, is the whole being worth at least as much as the sum of its parts. That is, a buyer of every last share of Apple stock lands up owning a company throwing off $60+ billion a year [1]. A buyer of every last Bitcoin ends up with nothing. I can't think of a non-currency asset that shares this property. For currencies, measuring the size of the monetary base can be meaningful. But it's not as meaningful as market capitalization is to individual equity securities. Epistemologically, we cannot choose good summary metrics for Bitcoin until we know what it's useful for. [1] https://www.sec.gov/Archives/edgar/data/320193/000032019317000070/a10-k20179302017.htm https://www.sec.gov/Archives/edgar/data/320193/0000320193170...
- FabHK 9y ago
  A crucial difference, and your hypothetical captures it very nicely. With Apple, the price reflects future income potential. Thus, if holders of Apple shares sell 10% of the outstanding stock, that should not affect the price much, in theory, except to the extent that it reveals new information about the firm. Sure, the price will drop, but if it drops much, investors will come in and pick up the cheap shares. With BTC, the value comes solely from the value people assign to it (unlike Apple!), and when people sell it, that is ipso facto evidence that it's less valuable (unlike Apple). Thus, if holders of BTC sell 10% of the outstanding coins, there's really not much to support the price (except maybe painting the tape and freshly printed tethers), and it could conceivably collapse completely. > I can't think of a non-currency asset that shares this property. Good point. I was thinking of gold, but surely if someone purchases all the world's gold, it'll be worth quite a lot, because it does have intrinsic uses. With BTC, people could trivially switch to any fork.
- jo909 9y ago
  But I think it is also clear that the theoretical buyer of every last share of Apple stock does not end up with a company "worth" $900 billion (it's current market cap). That metric and measurement of value just vanishes if there is no market any more. How you measure its "worth" from now on is completely arbitrary and debatable. Say he owns them all and then starts an auction for one share every day. Could you still take the price of that one share per day to determine a total value of the company? That is not in opposition of your argument. (Crypto)currencies are vastly different to stock in an established and profitable company. But also f.e. Uber stock is very different from Apple stock.

karrotwaltz 9y ago

Also, the amount of coins unaccessible due to lost private key or forgotten password must be significant.

VMG 9y ago

It is, but people pumping these coins do not care.

cup-of-tea 9y ago

Well they will sell for at least that, so are you saying the market caps given are too low?

soup10 9y ago
it's like if a vc invested at a big valuation for a tiny stake. it's impressive, but nobody knows if that valuation will hold up.
- cup-of-tea 9y ago
  But this isn't that is it? These are based on trades that probably took place in the last few seconds.
  - soup10 9y ago
    my point is the most recent trades are a small sample of financial activity which is then extrapolated to make the market cap metric. and i think it's not as meaningful a metric as it would be with stocks since its a much more volatile asset class
    - cup-of-tea 9y ago
      Yeah, but then maybe there should be some metric to measure volatility as well. Even some stocks are going to be more volatile than others. And it's not like stocks have never been outrageously overvalued before...

cup-of-tea 9y ago

They will all sell for that price if supply and demand are equal. Sellers will ask for at least as much as the value of the last trade, buyers will offer no more than the value of the last trade. When there is an imbalance then either buyer or seller must compromise by offering more or asking less, repsectively. These figures are based on trades that have happened in the last few seconds so it's more realistic than in some other markets.

zodiac 9y ago

Becaude you can't observe directly how much every person really values the assert, only the market-clearing price. No serious economist/trader thinks that 5% of the supply can be bought or sold for 5% of the market cap. This is exactly the same whether the assets are commodities, cryptocurrency or equity yet we still talk about market cap as a useful proxy.