Circulating Supply Myth - Emurgo / Cardano Foundation - Can you chime in here?

I see over and over again, people correlating marketing cap/ total supply to the price/value of ADA. I have heard Charles H several times state that marketing cap / total supply has nothing to do with the value of Ada. Bitcoin went to $20000 and that had nothing to do with supply. Also, don’t people realize that Cardano is more than just a crypto coin - it is a smart contract platform. And that it is being designed to run for decades! GRRR - Oh - Apple crossed the trillion dollar mark and there will be more to follow. So the trillion dollar argument doesn’t really apply as well - GRRR

So, maybe Charles H could address this in his next impromptu AMA. Or maybe / hopefully, the Cardano Foundation or Emurgo experts could explain this versus the pseudo experts.

Myself, I tend to believe the experts - especially Charles H.

(Thanks for letting me vent - and hopefully the Cardano Experts and clear up some of this misinformation. Oh, if Charles H / Emurgo / IOHK / or the Cardano Foundation experts tell me I’m wrong or have misinterpreted something - then my apologies in advance and I will gladly eat my share of crow)

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I agree with you but good luck getting those who don’t to change their minds! Many people are fixated on market cap, I think probably because it appears so simple, while to assess “true value” (if there even is such a thing) is more complicated in the crypto sphere than just about anywhere else.

I wrote a few words on high supply here:

High supply doesn’t matter, at least when you look at it rationally. I guess you’re right to point out that psychologically it matters, after all some people don’t think rationally.

If you want to see Cardano in the same light as other popular coins, use kADA (kilo ADA) as a unit instead of regular ADA. There are about 31,000,000,000 (31 billion) ADA in circulation, which equals 31,000,000 (31 million) kADA. This is the same order of magnitude as Bitcoin (17 million), Ethereum (101 million) or Litecoin (57 million). If ADA costs $0.13, then kADA costs $130. Simple as that. When you buy 500 ADA, think of it as 0.5 kADA.

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Does the KAda concept take into account the difference in decimal places between Ada and other coins?. There are less Lovelaces per Ada than there are Satoshis per Bitcoin for instance.

To begin with, at the protocol level there is no Bitcoin or ADA denomination, there is only Satoshis and Lovelaces. ADA, kADA, BTC, mBTC are all cosmetic displays for convenience. But the thing is, even the total number of Lovelaces or Satoshis doesn’t matter, not at all. The only important metric is what portion of the total supply a person owns, i.e. what percentage, how big of a slice of the pie belongs to you.

The Cardano ecosystem could make a decision that from tomorrow on, just like Bitcoin right now, we’ll have a 17,226,475 ADA circulating supply, and adjust everyone’s balance accordingly. So if you own 10,000 ADA, you’ll own 10,000 / (31,112,486,646 / 17,226,475) ≈ 5.5 Bitcoin-like ADA and the exchange rate would be $162 instead of the current $0.09. No difference whatsoever, you still hold the same portion of the market cap, your coins have the same buying power.

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I personaly like the high circulating suply .Witj increasing adoption it gives the chance to more people to own one ada for example.As it is impossible to own one bitcoin for most of the people in the world at the moment.

You are simply misrepresenting what Charles is talking about.

When you expand supply and/or circulating supply, you dilute the current supply. This is not what Charles is talking about when he says supply doesn’t affect the value, of course expanding supply dilutes the value.

Supply is just a benchmark for measuring the value of a single or fractional ADA - from a origination stand point, the total supply is irrelevant - any equally distributed change +/- in % would make no difference. That is what he is talking about. Had the project had a supply of 100M or 45B wouldn’t matter, at origination the market cap wouldn’t be different aka. the value of ADA would not be affected.

This is the problem with “believing the expert” when you dont understand the matter, you wont understand what the “expert” even said.

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Like I said my observation is that some people are trying to use market cap as a predictor of price and then they make statements why Ada will never reach such and such price - for example this article on Why Cardano $ADA most likely will never be worth $100 . In the article the author uses an the example of having Cardano’s circulating supply go to 35 billion in 5 years and an ada price of $100 a coin making the market cap of 3.5 trillion - then stating " Unless $ADA is the one (the coin that revolutionizes the way people use and see money, all over the world) a valuation this high is thus very unlikely, to say the least."

You are seeing this argument / logic appearing across multiple forums and YouTube videos.

Two things stand out to me. The first is the author’s belief that a trillion dollar market is unrealistic. Apple crossed the one trillion dollar market cap. Alphabet / Google will cross that mark in a year or two. And then this will be followed by even more. We are entering a new era of trillion dollar market caps. So to me, the trillion dollar presumption by the author doesn’t make a whole lot of sense.

Secondly, I see nothing about the author’s credentials. While I whole heartily believe in the freedom of speech, weight needs to be given to the credibility of the source. At the current time, there is nothing posted about the author’s credentials. Is this person a banker, an economist, or simply a person who has an interest in ADA but does not have any economic background. Since at this time, nothing is posted - I have to assume the least. If this person was a bonafide crypto economist or analyst working for a financial institution, it will give the article more credence.

So, I see this argument across YouTube videos and other discussion boards, that the marketcap and the trillion dollar valuation is unrealistic made by enthusiasts, armchair experts and non-professionals. I have yet to hear that from actual economists, professional crypto analysts, or academia.

Traditional supply and demand states that if you add more apples, cars, more physical widgets the price should go down. Yet in the technology field, especially digital assets / software this is not always the case. Think about software. If a developer sells their program to one person, then to the thousands or even millions. The first person and the millionth person still pays the same - price doesn’t go down. Supply is not a factor in digital assets. It would be an interesting question to study to see if you even needed to have a max amount of tokens / smart contracts if you planned on using smart contracts for perpetuity .

From my observations, what determines price of a digital asset are the fundamentals(product purpose, quality, etc), market direction (bear / bull, recession/boom), technology direction (next new thing), hype and demand. ( Note: Marketcap wasn’t a factor when Bitcoin went to 20000).

Myself , I think everyone has a right to express an opinion, but I think people should check the credentials of the authors. And, be wary of those who don’t give their credentials and/or who are not experts in the areas being discussed. (still respect their views, but weigh their info in terms of their credibility)

Myself, I look at Cardano through the lens of a developer and programming academic. I see Market Cap as a moot point and a bit misleading, since I correlate Ada / Cardano to software distribution. I agree with with Charles H that this could easily be a trillion dollar industry.

I would still like to hear the experts take from the Cardano Foundation, IOHK, or Emurgo.

On what exactly? What are you asking. The Cardano Foundation, IOHK, or Emurgo have no economic credentials of what you speak…

One of them a software firm, another VC firm, and a third a marketing/management firm.

Profesional crypto analyst…lol… you gotta be kiddin me.

Actual economist? What do you mean actual economist. It isn’t a protected title, that would be subjective judgement, who is a “actual” economist.

Anyone can call themselves a economist.

There are plenty of “economist” out there, one example is Paul Krugman who has even won a nobel prize, who is absolutely useless and just spurring non-sense at this point. Like hurricanes creating economic growth, and a solution the economic crisis could be preparing for a fake alien invasion. Complete Keynesian nonsense. In your eyes, this is a real economist, and his words should hold value by his credentials alone.

There is just the truth, no one has ownership to the truth, and every person can be wrong - but the truth can never be wrong.

Its very simple, bitcoin didn’t reach 20k… it reached a certain market cap… market cap is everything… the price of one BTC tells you nothing, you need to know the supply and find out the market cap…

ADA reaching 20k and BTC reaching 20k is completely different… but on the surface the same. Thats why market cap is the only true reading.

One trillion USD is unrealistic, except for that project that makes it and really changes the world, like Apple did. We are still limited by market cap though, Its a very important number, and the only number that matters. Individual price of a coin means nothing. It tells you nothing.

and no, we are not entering the era of trillion dollar market caps due to the size of these companies, but because of inflation. Yes I agree with you on a few like apple, google etc… but there shouldn’t be many in that category, and there wont, It will only be due to devaluation of the dollar. If you take into account real inflation adjusted value, the picture is very different. In fact, Apple is not the first… there has been several throughout history.

There is already a set “unknown” market cap that the free market has set on the value and demand for money, this is expanding/contracting pie, but it is this pie that everything that constituted as money or currency is fighting for, a part of that pie - they do not expand the pie, they can only gain share of it - on the opposite side of the sheet, you have supply (assets and products)

In comparison the USD, the most used and biggest currency in the world, 50% of the currency supply. Has a market cap of 3.6 Trillion… Which is using M1 which is the most fairest comparison we can do… the reason to exclude M2 and M3 is that these would form by itself, if any crypto-currency was to start being used broadly. Yes fractional reserve banking would be done upon Crypto too, just without any national bank being able to print it up if needed. Which is great. But it will still form.

So for ADA to be around that in terms of real value, today. We would have to out-compete the USD for it to be there. Could it happen? yeah but dont count on it lol… and this would be far far far down the road should it ever happen.

No crypto-curcurrency will reach 1T (in today’s value) and sustain it, any time soon.

BTC could do a blow-off top and perhaps go over it some day, but sustaining it is a whole other issue - because at the end of the day, you gotta represent that value in the marketplace to sustain it.

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Really?

Current Market Cap = all available shares or coins X current market price

That means something. The price of 1 ADA or 1 BitCoin on the other hand means nothing.

I hope you understand that. It’s very simple, but somehow people don’t get it.

Now…

Even though the Market Cap is a decent way of valuing an enterprise, it isn’t everything.

For one thing not all Market Caps are created equal:

Consider the Market Cap for TUSD, the way TUSD works implies that every TUSD token was bought for 1 USD. Therefore a TUSD Market Cap of 2.7B implies people put in 2.7B USD.

This is NOT true for the Market Cap of BitCoin or ADA, where the amount of USD put in is much less than the Market Cap.

Also, Market Cap is not the only way to value an enterprise. In the legacy financial world you would look at assets, cash flow and profits. You could do this with BitCoin; take how much money does the network earn for miners per year, and use that to arrive at a valuation.
https://cryptovoices.com/network-annual-revenue/

I dont think it is in their best interest to explain it as this is something out of their tasks. It’s no different with Charles explaining the Ledger. People just keep on asking it even him, almost giving its timeline like almost all of his interviews/AMAs. We must teach them how to make an effort to read and research. This is what I dont understand with them, they put so much money and yet cant give time to update themselves.

Anyways, my thoughts about this is that, market cap is being used the same as with stocks valuation - which defines its current value. It allows me to draw a line that shows expensive and cheap level. If you are to ask me, $2B market cap is just insane in a stock trader’s perspective, but who knows the value of crypto really is? What im sure about is that, the earlier the features get released, the higher the chance for its price to increase, hence market cap.

This topic has been discussed in the forum earlier and interesting details where shared. I am linking that topic here https://forum.cardano.org/t/a-good-article-for-those-who-scream-but-but-market-cap

Kudos to CashMeOutside. CashmeOutside has said so elegantly what I’ve been seeing in forums, youtube videos and articles. Ada is not a stock, so you cannot apply the stock tool of MarketCap equals tokens times price. Ada is not like a fiat coin or currency. That token can have a smart contract, dApp or side chain attached to it. So fiat rules do not apply. Traditional tools are not applicable - other means of valuation needs to be applied.

So kudos to CashMeOutside!

My other point is that do credentials matter. For example, if my car breaks down and I ask two people how to fix it. Suppose one person is a dentist who is a car enthusiast. and the other is a mechanic. I’m going to take the advice of the mechanic. If I broke my leg and I run into two people. One is a coroner and the other is an orthopedic surgeon. Both went to medical school. Both are doctors. But, for sure I would go to the orthopedic surgeon. Credentials do matter.

So hopefully a new person researching or entering the crypto / cardano arena takes away from this conversation are three things.

  1. When a traditional financial tool is applied to a crypto currency / smart contract platform, is that tool appropriate and accurate?
  2. What is the credibility of the source and how important is that to your decision making?
  3. Respecting the conversation. Meaning that it is ok to have different points of view and that public debate in a respectful manner is part of a free society.

Kudos to CashMeOutside and RobJF for their great insights!

Thanks everyone!

Here is a video from Philpa who has recently been coming out with a lot of videos about Cardano. I found this one to be quite interesting.

This is a straw-man example - no credentials do not matter - credentials cannot change truth.

The example you are giving is irrelevant, yes when the subject is something you do not care about, or have no interest in understanding. You have to weight your probabilities of which information to go with.

The car enthusiast may be a better mechanic than the mechanic and there will be many situations in real life where that is the case - but probability wise you will prob be better going with the professional mechanic. Do you know how many shady mechanics out there that shitty work and even steal from you and rip you of?

The point, if you arent willing to understand cars and dont care, then just have someone else that does do it for you… but then you cannot also claim your own opinions on this matter, you are simply regurgitating someone elses. Thats fine, but then again, you cannot put any opinions forward on that area - because your only argument would be the argument of authority.

The difference here is also that these are very measurable factual fields, the examples you give surround measurable physical technical skills. It is not the credentials that give the surgeon the skill, it is the actual skill. The credentials would just give you as a individual a higher assurance and more transparent assessment of making your choice, because you dont understand yourself, or have no willing to, so you put the trust in third-party who gives out that credential.

But the credential itself, cannot and will never change truth - and if you accept information/opinions based on credentials you automatically exclude yourself to join in on that conversation.

There are many areas, like in science, where I accept this. I retain lots of information from people I asses to be
be the most reliable (but I dont actually know, its just probabilities), but I do not run around and seriously argue these topics, because at the end of the day I do not personally have any comprehension of these topics apart from what comes from third parties.

Eisenstein did not have credentials to form out the theory of relativity, but it didn’t change, that it was the “truth”

Plenty of people with “Credentials” laughed of this… but again, the credentials had no impact, because evidence and truth is all that matters. In the internal field of science, which is probably the most pure, your credentials mean shit, the same goes for most and many parts of academia. The only thing that matters are studies and empirical evidence. You never refer to credentials, you refer to the evidence.

You really have to come and try to live with the rest of us where laws and credentials do matter - a lot. Some of the stuff you are preaching are either anecdotal at best or just simply wrong.

It’s not just about interest or enthusiasm about a particular field that matters. Anybody can memorize the entirety of Harrison 's Principles of Internal Medicine and think that they can practice medicine or even give medical advice. This is not true and those that do think this could either end up killing themselves or others. This is why credentialing and a license to practice medicine matter a lot. This is not specific to medicine either, there are other fields were this is important… Do you think NASA would want space travel enthusiasts to be in charge of their jet propulsion labs where millions / billions are at stake? No. Instead, they choose scientist/engineers that have proven track records of excellence amongst their peers i.e. they have identifiable / measurable achievements that serve as “credentials” i.e. that are recognized/accepted by the scientific community.

Without credentials, you will never have a chance to run your own lab and do science in academia or for that matter anywhere else. Do you realize that even after many many years of graduate and postdoctoral experience, you have a 0.01% chance of actually launching your own lab in academia? Without a track record of excellence, i.e. credentials, you will never be in academia.

I can go on, but I think I’ll stop here. Sorry, but I found your post ignorant, condescending and irritating at best.

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It is true that getting INTO the field where the field will even take your papers and studies serious aka. look at them. That is totally true, because life has time and resource restraints. The same goes for academical funding. But you will NOT find anyone who refer to credentials to further science, you refer to evidence. Your credentials mean jack shit in that process, your evidence must be able to stand alone, you as a person is irrelevant.

That is the whole idea with peer review, that you as a person is reduced to 0, and your evidence must stand on its own. At this stage at the process you could a be plumber, it would have no affect in the outcome.

You are missing the overall point.

I am not arguing that “Credentials” which is a third party approval for x does not have merit or function in society, of course it does - all I am arguing is credentials do not give you any form of exclusivity to truth.

On a last point… NASA will hire ANYONE who can further their technology, as well as any other private company… They even secretly got nazi rocket scientist out of from Germany…War criminals… Who high likely had to face prosecution was it not for this, but they hired them and got them out… Because they were key in furthering their tech.

Some people on the mention who never received any formal education that changed the world and academia. Michael Faraday, Leonardo da vinci, Thomas Edison, Charles Darwin (not in his field), and so many others. None of these have any credentials what so ever, but are foundational for so much work being done today… Again, because credentials mean jack shit… Its the actual science that matters… is it true, or is not true.

The day where credentials stump truth is the day where Academia losses all credibility - the argument of authority does not belong in any scientific debate.

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Feel free to show your formula for deriving a price from that equation. That is, demonstrate a price derivative function for price discovery for any asset or commodity.

Did you ever trade a stock? If not, then I can understand why you dnt get it

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A high marketcap is only reachable if most people think a higher marketcap is possible(so they do not sell) and that someone is willing to pay the price for the available coins.
A market cap is spekulation and does not represent the value of all coins ,but of the available coin price × allcoins.
If all coins where tried to sell at given price, price would drop to zero.