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.
The Truth Behind Bitcoin’s 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 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.
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.
Lingham 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!
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