Crypto

This post was last updated on September 11th, 2019 at 03:45 pm

By Nathaniel Whittemore & Clay Collins

Overview

This piece is a guide to the metric that dominates discussions of value in cryptocurrencies: market capitalization. In this piece, we review:

1. Why Metrics Matter
2. The Non-Crypto Origins of Market Cap
3. 4 Major Critiques of Market Cap:
   1. Tokens /= Stocks
   2. Inflation Schedules
   3. Circulating Supply
   4. Redemption Impact
4. A Review Of Market Cap Alternatives:
5. Market Cap Improvements:
   1. ~Fully Diluted Market Cap
   2. Realized Capital
   3. Market-Value-to-Realized-Value-Ratio
6. Value Assessment Alternatives:
   1. Liquidity/Volume
   2. Security
   3. Community/Network Health

The goal of this piece isn’t to argue for or against market cap, or present any one alternative as the answer. Instead, it is to present the idea that communally agreed-upon metrics create their own incentives. As a crypto community, the better the metrics we use, the better the work we’ll do.

Table of Contents

• Overview
• Introduction
• The Origins of Market Cap
• How Market Cap Is Calculated
• The 4 Major Critiques of Market Cap
  • 1. Tokens /= Stocks
  • 2. Inflation Schedules
  • 3. The Challenge of Circulating Supply
  • 4. Redemption Impact
• Market Cap Alternatives
  • Improvement #1: ~Fully Diluted Market Cap
  • Improvement #2: Realized Capital
  • Improvement #3: Market Value-to-Realized Value Ratio
• Market Cap/Value Assessment Alternatives
  • Alternative #1: Volume & Liquidity
  • Alternative #2: Security
  • Alternative #3: Community/Network Health
• Conclusion

Introduction

How we measure success shapes the actions we take to achieve it.

This truism is felt daily by students around the world forced to push any intrinsic joy of discovery to the side in favor of accumulating the knowledge that will allow them to perform on whichever standardized test they next face. It is felt in the creative war rooms of advertising agencies shilling clickbait content marketing when what they believe the brand really needs is to better define its purpose. This impulse is also at play in public markets, where companies are effectively competing to achieve the metrics and key indicators that keep shareholders excited.

In immature and emerging markets, this reflexivity takes on a whole new dimension. In the traditional startup world, companies are easily caught in the beauty contest of trying to raise the most money from the most prominent investors, regardless of whether they (strictly speaking) need that money, and premised on the theory that higher raises attract more attention and better talent. [Read more…] about Crypto Market Cap: An In-Depth Review & Survey Of Emerging Alternatives