Bitcoin.com_Valuation

Bitcoin’s Market Cap is Not What You Think it is

When traders and enthusiasts talk about Bitcoin, the discussion will always turn to the market cap of this cryptocurrency — currently around $8 billion. But at the same time, there seems to be a lot of misconceptions about what this number means.

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The Truth Behind Bitcoin’s Market Cap

Bitcoin.com_Valuation Market Cap

Bitcoin is not like traditional money, nor can its real value be expressed regarding a market cap. Since there are no outstanding shares in the Bitcoin world in a traditional sense, the market valuation of Bitcoin is subjective at best. In fact, Civic CEO Vinny Lingham recently explained how the term “market capitalization” was designed to apply to stocks. He writes:

Now, to be absolutely clear, this definition was meant to apply to stocks — not commodities and definitely not digital commodities. Given the comparison is a semi-reasonable proxy for Bitcoin, and it’s widely understood by the financial press.

But that is not all, as there is a difference between the market cap and the net market cap. These numbers have never been the same in the Bitcoin world, with discrepancies as high as nearly $3 billion USD back in December of 2013. In fact, there was a market cap difference between perceived and net value of $1.32 billion on May 29, 2016.

Bitcoin ATH Misconceptions

Bitcoin.com_Valuation Market Cap ATH

Bitcoin has experience several price bubbles in the past, which have had an effect on the cryptocurrency’s market cap. But at the same time, the Bitcoin block reward has halved on one occasion and is set to halve again this July. All of these events have an impact on the Bitcoin price, but it also skews the actual all-time high value of BTC by quite a margin.

Lingham continues:

Based upon my analysis, the ATH price for Bitcoin is $697.19 – which represents a major breakout level for Bitcoin and will likely see a lot of resistance. This is because it IS an ATH for Bitcoin, not a technical level. The technical levels essentially confirm what I’m saying — even though the technical analysis is not factoring in the points above, it’s very clear from market behavior.

The $697.19 price point is very different from what most people think the all-time high (ATH) value of Bitcoin should be. Just because the price reached $1,151 per bitcoin at some point, does not mean that is an ATH. In fact, the ATH is calculated from taking several market cap valuations of bitcoin into account during these prominent events in history.
Bitcoin.com_BTC Market Cap IntervalsLingham compares the Bitcoin market cap misconception with the way Apple’s stocks are valued. Very few people seem to remember Apple completed a 6-1 stock split in the past, which puts their all-time high share price at $133, rather than $800.

One final factor to keep in mind is how the number of bitcoins generated over time does not equal the number of BTC in circulation. A lot of coins have been lost or destroyed over the past seven years, which has an impact on the perceived market cap as well. Additionally, it is incorrect to not factor in missing or lost coins as far as the Bitcoin ATH is concerned.

What are your thoughts on using terms such as market cap and all-time high in the Bitcoin world? Let us know in the comments below!


Images courtesy of Shutterstock, India Info online

  • Hennessy Hemp

    This statement is inaccurate: “the Bitcoin block reward has halved on several occasions”.

    The Bitcoin block reward has halved once, from 50 to 25btc on Dec 28, 2012. The halving on July 10th, 2016 will reduce that again by half to 12.5 bitcoins produced every ten minutes for approximately the next four years… when it halves again. We repeat that 4 year cycle until roughly the year 2140 to produce all 21 Million BTC, but by then the fees from network usage (which get added to block rewards already) will pay the miners to continue running the network rather than new coins produced on that network. That’s how the supply remains capped…also remember Bitcoins can be divided currently up to 8 decimal places (the smallest increment being known as a Satoshi). If in the future the network is so widely used that 8 decimal places is too few, the developers could add more, and the miners would likely support that because it could increase the value.

    • JP Buntinx

      I did indeed get two things mixed up in my head, let me rectify that. The confusion arose with wanting to touch upon the Bitcoin halving, and significant Bitcoin price moments in history.

      My apologies!

  • vlc

    So market cap is not current price times
    number of coins avaible?

  • Marcello

    The ATH of Bitcoin is 1151 usd, the rest are only words, if it is means the hig time price. Capital

  • John Hanekamp

    The most recent Apple split was 7-1, not 6-1 at the article states.

  • Sandeep Chopra

    Dear Jean

    I support your statements : The Market Capitalisation of Bitcoins is different from Net Market Capitalisation. I also agree that ATH of Bitcoin should not be considered as USD 1151 and may be you rightfully calculated ATH to be around USD 697.19. Factoring the lost / destroyed bitcoins is also agreeable specially since they are amounting to 25,00,000 bitcoins which is definitely not a small volume. After going through your figures, i realised that current rise in Bitcoin prices will definitely meet resistance at USD 697. All said and done, one thing that is not clear is, do you want to say we should not use the term Market Capitalisation for Bitcoins as you feel MC is best fitted to stocks only? If so, what would be your measure to rate Bitcoins as a commodity / currency influencing the world economy. May be I am wrong but i used to consider MC as the measure by which i would consider any commodity having a influence in global market.
    regards
    Sandeep
    I am a blogger writing a site on bitcoins : http://infoaboutbitcoins.com