Cryptocurrency Capitalization : how to calculate it?
What is the capitalization?
The capitalization of a cryptocurrency is calculated by multiplying the number of tokens in circulation by the price. Since cryptocurrencies can be"mined", the number of tokens in circulation is not always fixed; this is why we distinguish between two data items on each cryptocurrency:
-”Circulating Supply" means tokens currently in circulation that can be traded.
- “Max Supply", the maximum number of tokens that will eventually be in circulation.
At the time of writing this article, Bitcoin is quoted at $8,000, there are 16,846,775 BTCs in circulation, and the maximum number of Bitcoins that will be put into circulation is set at 21,000,000 BTCs.
So the capitalization for Bitcoin is $8,000 x 16,846,775 BTC = $134,774,200,000.
But if the price remains stable, the future capitalization of Bitcoin (when all Bitcoins are in circulation) will be $8,000 x 21,000,000 BTC = $168,000,000,000.
In theory, the more tokens a cryptocurrency has waiting to be put into circulation, the greater the risk of its price being diluted in the long run. But projects move forward, investors appreciate projects that come to fruition, some cryptocurrencies become fashionable, and that is why some cryptocurrencies’ rate do not become so diluted in the end (it's rather the opposite even.)
When we talk about a cryptocurrency’s capitalization, it is important to keep in mind that there are two capitalizations: current capitalization and future capitalization.
The market capitalization of cryptocurrencies is the sum of all current capitalizations for each cryptocurrency. At the time of writing, the cryptocurrency market was capitalized at about US$400 billion, with a daily trading volume of about US$22 billion. So every day between 10% and 20% of the global cryptocurrency capitalization is traded, hence cryptocurrencies’ high volatility.
What is the capitalization of a cryptocurrency based on?
That's THE right question. And I only have vague answers to give you. Unlike shares (shares of companies) which investors can use to analyse the company's balance sheet and income statements, there is no fundamental data on cryptocurrencies. We capitalize the value of a project, its potential. And for cryptocurrencies which are only used as "virtual currencies" their use and current mining.
The trading volume of a cryptocurrency is good data to determine its power on the market, but in no way determines its capitalization.
If someone could "fundamentally” explain why a cryptocurrency is worth its capitalization, I think everyone would want that information. For the time being, we can only try to relate the capitalization of a cryptocurrency with a company that has the same capitalization. At $8,000, Bitcoin has approximately the same capitalization as a share in TOTAL. Do you think that is enough, not enough?
Given that the cryptocurrency capitalization measurement is difficult to determine, it would seem logical that the price volatility of cryptocurrencies never falters. Surfing from euphoria to the blues, cryptocurrency capitalization goes wherever it wants to go. But as long as cryptocurrencies continue to attract new investors (without losing the old ones), it will be up!
Capitalization of SCAMS
I want to finish this short article about cryptocurrency capitalization by telling you about the capitalization of SCAMS; SCAMS are fundraisers (in cryptocurrencies) that are not based on any projects. Generally, SCAMS never go as far as to quote on a trading platform. They just raise funds then take the money and run. But among all the cryptocurrencies that are quoted so far, there are some for which we really need to ask ourselves the question: "But how can this baloney, based on nothing (neither project, nor trading) still be capitalized at so many millions?” I have the answer to this question: the euphoria about cryptocurrencies has been such that investors have started to buy everything and anything, starting from the principle that project or no project cryptocurrencies go up.
NB: that reminds us a little of the internet bubble! Remember that, at that time, a listed company that announced the launch of its "website" (WOW!) saw its share price soar the next day.
In short: roll on a big "purge" of cryptocurrencies, that only leaves good projects, good cryptocurrencies at a good price. And the Scams disappear. But I am dreaming. There are SCAMS, and there always will be. It's like "fund Z" on the Paris stock exchange. But even with that, the price was at least based on something.