This article is bogus with its primary assertion with “So why is it all fake? To put it simply, cryptocurrency market caps are fake because it is impossible to trade most cryptos for U$. Sounds pretty obvious, but it isn’t.”
Many millions of people and myself have already proven this statement to be false.
Unfortunately the article has many valid points. Did you read it? There has been countless examples where you realise that the 300 billions circulating supply of the RickyCoin, first traded by a one single trader, my grand-mother - who spent only 1$ on this not so promising coin -, instantly results in a $300 billion market cap, even though the 299.999 billions other coins haven’t been traded…RickyCoin now sits on the Iron Throne of Crypto and is now king.
Please explain to me in detail how the below mathematical demonstration is false (Here is the original Medium article that you might find interesting).
This is very important, so let’s repeat. Bob invested only $4, but the market cap was increased by $12.
And if you are still not convinced, then you will probably find this Forbes article more reliable, and it says exactly the same thing
The article is mostly opinion and the authors interpretation of what they believe to be true. I do not find the points valid. What I do know is that myself and 2 other people I know personally have traded alt coins for many THOUSANDS of real US dollars using GPU mined coins that did not previously exist, totally destroying the whole point of the article.
I just completely disagree with the author. The article is bogus.
Lastly - do not insult me with your comment “Did you read it?” then give an adolescent homework assignment to “explain to me in great detail…” with your silly grade school example. The reality is that myself and many millions of people have been able to trade dollars for alt-coins back and forth simply using ETH, BTC and Litecoin as a pass through medium and the realistic market caps at the moment of the trades reflected actual value.
Wow. I guess that if I sparked off such a harsh reaction my post must have been very badly formulated and of course it wasn’t my intent. I don’t understand why you are so aggressive. It goes without saying that the apple example taken from the linked article from Sam Aiken was meant for simplicity and not to insult you.
Of course if you mine coins, this article doesn’t apply, as it is focused on trading. That is why I shared 2 other articles, from Sam Aiken and Forbes to back it up.
If you still believe after that example that market cap reflects the actual value, there is nothing more I can say.
You seem like a very smart person and polite as well, so I assume you are ok if we just agree to disagree on the merits of the article. Sometimes I do get aggressive when my own actual experiences disagree with the opinions of pundits who garner a larger audience.
I should have remembered this game with the link posted over on reddit when I replied. My bad … http://ncase.me/trust/
Suppose you generate 1 billion tokens or coins and once they are listed on a exchange, the first trade ever performed will become the unit price. Market cap trackers will then multiply this initial price for one trade by 1 billion – and that becomes the total market cap, even though a single coin was traded.
(Quote from article linked in the OP.)
This seems to me the main point in this argument, and it seems conclusive. How could that metric not be misleading? Somebody explain, please…
It is misleading if you think “market cap” == “money invested”, most people know it doesn’t mean that, except in the case of USDT, EURT etc, where it should equal that (but probably doesn’t). This isn’t different to Market Cap in the stock market; number of shares * last traded price.
Well it’s not misleading if you understand it! The trouble is, I doubt whether everyone does.
Here is the bit I am not sure about:
The reference between fiat currency valuation and cryptocurrencies is absolutely worthless, unless you are trading between fiat and crypto. And, for 99,9% of all trading volume, that means only Bitcoin can have a fairly accurate fiat market cap.
and
The fact that you can trade altcoins for Bitcoin, and that Bitcoin itself has a price in U$, does not imply that these altcoins magically acquire the equivalent U$ valuation. As we’ve seen, this implies the same U$ being counted twice, once for the altcoin and a second time for Bitcoin or whatever crypto is actually traded for fiat.
They are saying “each dollar is counted twice”. They are saying the BTC market cap is more valid than a Crypto that isn’t traded against Fiat. I agree that in terms of volume each dollar is counted twice, but is BTC the true valuation and the other Crypto the “fake” mkt cap?
If I buy BTC, just to transfer to Binance, so I can buy ADA with it; isn’t BTC the “fake” one?
This is also the only part of the article I was confused about.
I agree on that point too. The meaning of “fake” is actually always context-relative, and usually says as much about the person using the word as anything else. (I’m a bit of a philosopher on the side and I’ve spent time looking into this. The same applies to “real”.)
However, I would argue that, for the unwary, crypto market cap figures imply that the crypto space generally is much, much, much larger than it really is.
Of course, some people might think that’s a good thing!
Its misleading because the sample size is too small. Statistically, its only one trade so that makes the argument rooted on the sample size of one.