The market capitalisation seems to be the price of a cryptocurrency at first glance, the second most important criterion to the success and spread of a crypto-currency. As the market leader coinmarketcap.com sorted, for example, all of the crypto currencies in their Ranking according to their market capitalisation. Also on our website coin-hero.de all crypto currencies are on the course overview, also according to their market capitalization and sorted. How this is calculated and why the value is maybe not so important, as many think, we want to explain in the following article.
First of all, we should clarify how the market capitalisation is calculated and what it means. In the next step, we would like to introduce an alternative value that may allow a deeper insight on the capital in the crypto currency market.
How is the market capitalisation?
This is an example. The Bitcoin at the time of writing a course of 11.323.80 USD. The Bitcoins that are generated at this time by Mining already, be 16.896.925 BTC.
Multiplying these two values gives the market capitalisation. This is, in our example, 191.337.399.315 USD.
Important to know is at this point that the rate or the price of a Bitcoin reflects the value of Bitcoins. This is also a principle, which is, for example, to find the traditional stock exchanges in the world, such as the DAX or the Dow Jones, but also in our everyday life.
A car, for example, € 20,000 value (the entire Material plus work performance, and other costs). The price of the car is 40.000 Euro. Since buyers are willing to pay this price for the car, can the manufacturer allow it to demand this price. As soon as there are no buyers who want to buy at the price of 40,000 euros, the manufacturer or dealer, with the price down. This is the principle of supply and demand.
The same principle applies to crypto-currencies. The price is determined by supply and demand and the expectations of the future price. The market capitalization reflects, therefore, not again, how much the crypto-currency and is the company behind the crypto-currency is really worth.
Even more important, however, is to understand that the overall market capitalization is not the capital, which in the entire crypto-currency market has. At the time of writing, the Market capitalisation was approximately 374 billion euros. This does not mean that 374 billion euros have been invested by investors in the market!
What is the Net Inflow?
“Real” in the market capital flows only, for example, if a Person buys at Litebit crypto-currencies by Euro paid. This is a tributary. The inflow (Net Inflow) and the market capitalisation, however, can vary widely.
One reason for this is that most of the circulation Coins (English: Circulating Supply) were not actually bought at the current price, but at a much lower price. In addition, the developer or company retained behind the currencies is often a (small) share of the Coins as a “reward” for their work by Pre prior to the official start of sales of the Coins-mines and claim.
Effectively is gone for these Coins or tokens, so no capital in the market. In comparison to the fact that most of the Coins and tokens have been purchased at a much lower price, this will not be a factor, but only marginally.
To illustrate this, it should be mentioned at this point is a particularly extreme example. U Cash is in February this year for a short time and within a very short time in the Top 30 crypto-currencies by market capitalization.
This is due to the output of 8.6 billion Coins in under an IBO (Initial Bounty Offerings). At a price of around $ 0.05 with a market capitalisation of approximately 440 million. In fact, “bought” (Net Inflow) was probably a much smaller number of Coins.
In the framework of the IBOs, and a broadly based Marketing campaign not only millions were spent wasted even billions of Coins and/or against the performance of work. So for example a Reddit, and a Steemit Post was rewarded with 50,000 UCASH.
A News article has brought to 200,000, a Video of 300,000. Alone, the registration with U. Cash has introduced every user 500 Coins. Thus artificially creating a market generated capitalization. U Cash was thus able to advance in the Top 30 by market capitalization.
The example shows, in our opinion, the market capitalization of the Coins should not be overstated. From the very beginning, without the factor of price development, it can have a crypto currency is a billion Dollar capitalization, without the of this capital was actually paid.
The market capitalization can be used, in our view, therefore, only for comparison to other Coins of similar Circulating Supply. Similar quantities can be an indicator of what the price could reach out to a young crypto-currencies. In addition, she is of a certain size, of course, also an indicator for the success and dissemination.
In part 2 of the series, which will appear on Monday, it is a matter of whether it can be determined how much the capital is, so far, gone really in the crypto currency market and what conclusions can be drawn from it.
Disclaimer: — trading in crypto-currencies carries a large financial risk, and can be up to a total loss of the invested capital. Coin-hero.de does not constitute investment advice and recommendation within the meaning of the securities trading act (WpHG). The website content is intended solely for the Information and entertainment of the reader. The statements made here represent only our own opinion and not a recommendation to buy. Please do your own research before you invest in crypto-currencies. We do not accept any liability for any kind of damage. Please also read our disclaimer in the imprint. —