[germanjoey]

The article (or, rather, the commentary in the link above on the article) talks about the fallacious notion of "market cap" in regards to cryptocurrencies. That is to say, e.g., multiplying the number of bitcoins in existence times the current market price is a silly metric because the entire market would never be able to cash-out at that maximum price.

What I was wondering was: is there a better number? e.g., is there a way to calculate the amount of USD put into a cryptocurrency across a timeframe? What I'm imagining is a metric like (sum of all bitcoins bought by USD purchase price) - (sum of all bitcoins sold by USD sale price) = amount of USD that has been put "into" bitcoin. That first glance, one might expect this number to equal zero, but it should be greater than zero because of the new coins created by mining.

[secabeen]

I would extend this concept to all non-cash financial assets. All of what you wrote above applies to Tesla shares, or Ukrainian real estate, or anything that's not currency. It would still be incredibly useful, but it's also based so much on psychology, I don't know if there's a mathematical way to calculate it, like there was Black-Sholes for futures.

A concrete calculation for this would revolutionize finance.

[neuroma]

Agree, but, mind bender... this relationship also applies to currencies. A useful statistic is the volume transactions required to shift the price 2%, looking at an open order book. It gives you a notion of the available liquidity. It is liquidity that matters, as it allows influx and efflux without causing inelastic price movements.

[Animats]

There's book value and price/earnings ratio. Valuation of operating companies is well understood. Buffett buys on that basis.

[cdiddy2]

I am late to this question but there is actually a method that really only works for cryptos. Its called realized cap. Multiply the each coin by the price at which it last moved and sum it all together. This gives a closer estimation of how much money is really in the system. It is not perfect but neither is mcap and this gets a bit closer.

https://messari.io/charts/bitcoin/mcap-realized

[thinkmassive]

Realized Capitalization came from CoinMetrics. Many details in their original announcement: https://coinmetrics.io/realized-capitalization/

[tromp]

> What I was wondering was: is there a better number? e.g., is there a way to calculate the amount of USD put into a cryptocurrency across a timeframe?

For PoW coins there is. For every day in the coin's price history, multiply said price by the number of newly mined coins that day, and sum over all days.

Sadly, I don't know of any site that publishes such a metric, although the column "PoW Produced (24h)" of [1] shows the product of today's price and mined coins.

[1] https://www.f2pool.com/coins

[thinkmassive]

CoinMetrics has done research in this area, for example Realized Capitalization: https://coinmetrics.io/realized-capitalization/

[tromp]

That one seems to correspond less to "money put in" though. As they note, just having Satoshi move his one million bitcoin would increase Realized Capitalization enormously, even though no new money is put in.

Sum of daily price times daily emission on the other hand represents the total miner revenue; how much they would have made if they sold their mined coins as soon as possible (ignoring coinbase maturity for simplicity), which presumably upperbounds the total amount of money spent by miners on hardware and electricity.

[thinkmassive]

Good point, although your algorithm sounds more like it measures a lower bound on miner revenue, since it doesn’t account for miners who avoid selling their proceeds when they perceive the exchange rate to be too low. It also doesn’t account for future transactions of the same coins, so it doesn’t really address the entire market, only mining revenue.

Realized Cap isn’t perfect but it seems like one of the most useful attempts at measuring market cap so far. Of course “usefulness” depends on the question you’re trying to answer. Other factors can be taken into account, like the Free Float Supply: https://coinmetrics.io/introducing-free-float-supply/

Also keep in mind most of these calculations only consider on-chain transactions. Funds could be sitting unmoved on chain for years while being transacted many times per day on a second layer: Lightning Network, “wrapped” on another chain like Ethereum, or traded between participants on the same exchange.

[bigtunacan]

Overall, I enjoyed the analysis of the piece, but I disagree with their take on market cap.

Amy Castor - "Yeah, market cap is a meaningless number. It assumes everyone bought at the current price and could cash out at the current price."

We could just as easily apply that basic logic to any security. Amazon(AMZN) is ~3275 a share with a market cap of ~1.668T. That also assumes everyone could cash out at ~3275, but the reality is if selling pressure is higher than the buy side demand that selling shares will drive the price down as buyers would be able to continually bid lower. Eventually it would reach ~0 share price and effectively a 0 market cap.

So in that sense token market cap is a fair equivalency. What makes a dollar worth a dollar? Crypto value at any given point in time is just an exchange value against fiat currencies. This isn't much different than an exchange value between USD and the Ruble; it will fluctuate.

[acdha]

> Eventually it would reach ~0 share price and effectively a 0 market cap.

This is the misunderstanding breaking your argument: AMZN shares are fractional ownership of a company with assets and ongoing revenue. In the event of a business downturn, those will go down but they’re not going to zero in any plausible scenario - even bankruptcies usually return some fraction of value to shareholders.

This is important to understand because cryptocurrencies are the weakest form of a fiat currency: unlike those AMZN shares they have no value except for social consensus and unlike a sovereign currency they have no pressure creating demand — nobody must have them to pay taxes, there are no government contracts or salaries, etc. and there’s no inherent value to a random number so there’s nothing to keep that floor above zero.

[fragmede]

> even bankruptcies usually return some fraction of value to shareholders.

The three issues with that are 1) liquidation preferences, 2) the fact that normal people can only afford to hold an infinitesimal amount of Amazon stock, and 3) (basically) only common stock is available for purchase by normal people. This means while that's technically true, unless you're, eg Jeff Blackburn, you ain't getting shit if Amazon were to close shop and return the money to investors.

Let's say you're holding 100,000 shares of AMZN. At ~$3k per share, that's some $300mm in shares, but with 508.84M shares outstanding, that's a grand total of... 0.02% stake in the company. In an unlikely fire-sale of the company and returning value to shareholders, that could still be worth something, but it's a unreassuringly small number.

[ipaddr]

They represent the same value prop as any stock. Any company could go to 0 and the floor of the exchange is littered with delisted companies.

Amazon is big and the chances it goes to 0 are less than a company still making vcrs. The same can be applied to bitcoin.

Government and other contracts could be cancelled. The value of assets can be lower the debt. Bitcoin has no debt while a company like Amazon can have billions of dollars of debt.

[acdha]

> They represent the same value prop as any stock.

Try thinking about this a bit more: what do you have if you buy a share of stock? What does that company own, what is its ongoing cash flow, etc. Now repeat the same thing for Bitcoin and notice how the answer is “nothing” except for the possibility of getting someone else to buy your coins.

That's the difference: there's no plausible reason to think that people are suddenly going to stop shopping online or using cloud computing. The price isn't going to suddenly tank because other people will buy into a popular company which has shown it can reliably run profitable businesses.

In contrast, nobody needs Bitcoin for any reason — we all have alternatives for currency, value storage, etc. which are cheaper, faster, and easier to use and almost nobody as a requirement that they buy Bitcoin. If some web3 play actually comes up with something normal people want and they all switch to Ethereum, there's no floor on the price. Unlike Amazon, there's no revenue stream which can be used to pay dividends or buy shares back when the price falls.

Another way to think about it is to ask who'd notice if it's gone. Amazon disappearing would disrupt business all over the world in multiple industries, and that cost of switching provides a lot of inertia. Bitcoin is mostly used for speculation and the vast majority of the fraction of transactions representing real economic value have easy replacements. When the switching cost is that low, there's little pressure to stay. Even if you really believe cryptocurrencies are the future, there's no law of the universe saying it's going to be this one rather than the many drop-in replacements.

[cuteboy19]

> Bitcoin has no debt

True, but it also burns many TWHrs of electricity everyday. Also I doesn't have any revenue.

If you look at it like you would look at a normal company, then it would be a terrible purchase. A company that just burns cash for no reason and generates 0 revenue

[FabHK]

> We could just as easily apply that basic logic to any security.

Not quite. An Amazon share is a claim on future residual cash flows, whose net present value constitutes the (unknown) "true value" of the share. If Amazon falls to 1/10th of its current price because of some tweet by Elon or whatever other (extraneous, fluke) reason, lots of people would be lining up to buy it, because they get a stake in an actual business that would repay them their investment within a few years. So, no, it would not reach 0 share price.

(So, while the argument in the article needs some refinement, its broad thrust is true: market cap for a publicly traded company is much more meaningful than market cap for a crypto currency.)

[nightski]

In theory it sounds so logical!

Is it though? Have you actually tried to apply this in practice to a trading strategy? I think once you start trying to predict prices based on NPV of future cash flows this quickly falls apart, even with large behemoths like Microsoft, Apple, etc...

[FabHK]

I am not suggesting that you or I can compute the NPV of future cash flows and then value the share, certainly not easily. But that was not the point. The point was to distinguish shares (and other securities) from coins: the price of the former is (softly) constrained to be within the vicinity of their intrinsic value. Cryptos have zero intrinsic value.

[mrb]

Crypto have intrinsic value: they are payment networks that work even where traditional systems fail. No denied transactions. No limits. No "account" to open. Works for the underbanked. Send money truly anytime anywhere. No other system does this. That's the value.

[nightski]

The distinction is meaningless to me. There were companies in the dot com bubble which had extremely high valuations which went bust as just one example among many. These stocks were not softly constrained at all. It was pure speculation and it happens all the time.

I don't think it is right to call growth speculation "intrinsic value". The only thing that is truly intrinsic in my opinion is profits. But profits aren't a good way to measure value of an asset. Because the asset (stock in this case) is separate from the company itself. A company could generate slim profits and not grow each year. That has intrinsic value to the employees and customers. But that does little for the stock.

[anonporridge]

This illustrates an important point to me.

First of all, money or value is a purely memetic construct. It's a grand illusion that only exists in our collective network of consciousnesses and operates as an abstraction to efficiently keep track of favors owed.

Therefore, value or money doesn't just transfer with explicit trades, as in trading $40,000 for 1 bitcoin adds $40,000 of value to bitcoin. Value also transfers memetically and invisibly, as in many people suddenly start to believe that asset B has 20% more value than asset A than it did yesterday. No explicit trade took place to create that transference of value. It's just that lots of people suddenly started believing that asset B was worth more favors that asset A. Sometimes that value is fairly easy to define, like by projected earnings of a company over the holding period of a stock. More often it's a nebulous and decentralized calculation of the market.

[davidgerard]

No. "Market cap" of an equity stock is a useful number that tells you something. "Market cap" of a cryptocurrency tells you no useful information about it.

What you care about is liquidity (can be roughly estimated from exchange data) and trade volume (much harder to estimate, in the face of endemic wash trading everywhere in crypto) - you care about movement of the asset and the movement of the money for it.

[quickthrowman]

AMZN had $8B of shares traded today. Just under $2B of BTC traded hands across the major exchanges on Wednesday.

AMZN is a single ticker, there’s several orders of magnitude more liquidity in equities alone than all cryptocurrency combined. $34B of SPY shares traded today, and that’s a single ETF.

> That also assumes everyone could cash out at ~3275, but the reality is if selling pressure is higher than the buy side demand that selling shares will drive the price down as buyers would be able to continually bid lower. Eventually it would reach ~0 share price and effectively a 0 market cap.

This is wildly inaccurate.

[saalweachter]

> We could just as easily apply that basic logic to any security.

People do, uh, buy whole companies from time to time. When they do, the price is at least close to the current market cap of the company.

Barnes and Noble had been publicly traded, but was taken private in 2019. The private equity firm paid about 140% of the market cap at the time the deal was announced.

[dorgo]

>is a silly metric because the entire market would never be able to cash-out at that maximum price.

On the other hand, you can't buy all coins even if you pay the market cap..

[vmception]

> What I was wondering was: is there a better number? e.g., is there a way to calculate the amount of USD put into a cryptocurrency across a timeframe?

Velocity is a very important factor that critics of asset-wealth ignore.

When it comes to criticizing crypto-assets specifically, people just turn their brain off or are completely ignorant to how assets they respect work in order to hold crypto-assets up to a fictional higher standard. but even when articulating their standard its like "do they even know what they're talking about?"

for example, when comparing crypto assets to currencies, due to the "cryptocurrency" misnomer and skeumorph in the name, the illiquidity and relative few transactions in comparison to the marketcap seems like an important area to focus on, to them, while completely missing that currencies are broken down into 4 segments for this exact same reason. M1 being that tiny sliver used for transactions with M2 and beyond being illiquid allocations of the currency, the similarity of behavior ironically bolsters the currency aspect of crypto in what was supposed to be a criticism.

Many of these criticisms focus on the conversion to a fiat currency, and neglect the ability and reality of acquiring goods and services and investments directly with the crypto.

I see something like this over and over again.

These all factor into how one would go about valuing any particular asset. If a replacement for marketcap was sought after. But "dollars in over time" is not good enough, as it misses how liquidity can change at any moment, and misses the velocity of activity within any one crypto economy.

[mrb]

The market cap metric may seem silly to you, but it's the same metric used by publicly traded corporations. And there is nothing silly about it. All shareholders would never be able to cash out at the current share price, but this isn't a reason to disregard the market cap metric.

[acdha]

There’s a key difference: corporate shares have a value anchored in the company’s assets and revenue. The market cap can still fluctuate, of course, because different people will have different assessments of the future profitability but the floor is going to be based on the company’s assets, contracts and sales predictions, obligations, etc.

In contrast, cryptocurrencies have no floor because there’s no inherent value to a random number and nobody has a need to pay for a specific token. If something falls out of favor, there’s no reason to expect to find a buyer at any price.

[nightski]

Value is anchored in the equilibrium between supply and demand, that's it.

Maybe the things you mention do drive that equilibrium. But I'd bet you'd have a hard time developing a profitable trading strategy based on those metrics alone. I know I have tried with little success.

[mrb]

Corporations can still very much "fall out of flavor", driving their revenues and assets to zero. This criticism isn't only applicable to crypto.

And cryptocurrencies' intrinsic value is this: they are payment networks that work even where traditional systems fail. No denied transactions. No limits. No "account" to open. Works for the underbanked. Send money truly anytime anywhere. No other system does this. That's the value.

In the end, there is no fundamental difference between a service provided by a corporation vs a service provided by cryptocurrencies. Both services can and do have value.

[acdha]

> Corporations can still very much "fall out of flavor", driving their revenues and assets to zero. This criticism isn't only applicable to crypto.

That's technically correct but missing the point: cryptocurrencies are an extreme outlier in that they have literally nothing other than social consensus backing them. If you look at examples of failing companies you will find a few cases of Theranos-level fraud but far more cases where a company was mismanaged into the ground but shareholders received _something_ and it's not common for this to happen so quickly that nobody had time to react. The more common trajectory is something like Sears or RIM where the writing was on the wall for years while the PE guys strip-mined the corpse or someone buys it to go patent-trolling, where a savvy investor has plenty of time to exit before the end and the people at the end still receive a fractional payout.

> And cryptocurrencies' intrinsic value is this: they are payment networks that work even where traditional systems fail. No denied transactions. No limits. No "account" to open. Works for the underbanked. Send money truly anytime anywhere. No other system does this. That's the value.

This is a good example of the problem: those claims are either completely untrue or significantly overstated but you have a significant financial interest in repeating them because being honest will imperil your ability to find someone willing to pay more for your random numbers than you paid originally.

[modeless]

The really important metric isn't how much money has gone in, but how much money you can get out. You can actually calculate something related to this: take the order books of the large exchanges and add up the USD values of all the buy orders. Of course there's spoofing and dark pools and all sorts of other reasons why this is not exact, but as a first approximation it's better than market cap.

[ludamad]

I like e.g. '2% liquidity depth' measure along with market cap, to show how steep the iceberg is if you start selling

[davidgerard]

yep, this is the sort of number a crypto trader actually cares about. "Market cap" gives a crypto trader no usable information.

[davidgerard]

The number that would actually tell you anything is movement of actual dollars in and out of an exchange and into and out of a XXX/USD trading pair that day. You're interested in flows, not specious headline-friendly marketing numbers. The trouble is that that information is basically not available.

[jaggirs]

For every btc bought there is one sold, the equation you gave thus adds up to zero.

[ChrisClark]

It's a good number to use if you are comparing different coins by value though. You need to know the circulating supply if you want to compare the price of each token.

[kayamon]

Presumably one could multiply the mining effort put in so far by the energy prices at that time, to calculate total... uh... watt-dollars or something.

[ianai]

Multiply the volume traded per day by the average strike price (or last strike price). Compare that to the total market cap.