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Global cryptocurrency “market cap” exceeds “US” currency in circulation (stlouisfed.org)
13 points by wutXthree 6 days ago | hide | past | favorite | 38 comments

"market cap" assumes infinite demand for your currency, and that all your currency will sold at the current value. Kinda not happening.

The same standard is used for fiat currencies, which is why they have fluctuating values against other currencies. It is just a premined asset with infinite emissions with some recurring demand drivers, it doesnt exist in a different reality than other assets such as crypto. The market tolerates it and thats that.

The entire FX market is that reality.

The reporting and liquidity of crypto assets has become impressive and will continue to improve. I think the most useful thing would be for you to make a note of what standard or threshold you would use to find crypto growth to be impressive, make sure that standard is a standard that matches other asset classes you respect instead of a fictional higher standard exclusively for crypto, and then watch for crypto to meet those standards as it matures. You can even help improve it.

same for the "US" dollar?

Nope -- if we're comparing market-caps as priced in dollars, the USD market-cap will always be the number of dollars in circulation.

If we're comparing market-caps in gold bars or cheeseburgers, it is a different story.

But the current market cap of cryptocurrency in gold bars or cheeseburgers is higher than the current market cap of US dollars in gold bars or cheeseburgers, right?

No, because the post only counts cash in circulation, and not USD in bank accounts.

Which is comparing like with like, isn't it? The USD in bank accounts is predominantly borrowed money, i.e. fractional reserve banking. There is more in bank accounts because Alice has $100 on deposit which the bank lends to Bob and credits Bob's account with $100, so now there is $200 in bank accounts but still only $100 in the vault.

Now I want to know if there is anybody doing fractional reserve lending in Bitcoin. Because if that was allowed anywhere it would erode its status as a deflationary currency and reinstitute the power of central banks to create the currency in the form of credits denominated in it at financial institutions.

Models being imperfect, don't make them useless, especially when you're modelling both phenomenom the same way.

Comparing money in circulation, to the value of arbitrary tokens, most of which are held by a few small players, isn't 'comparing a phenom on the same basis'.

Since cryptos are not a currency, and have no backing either in the form of some other financial instrument (i.e. Government Bonds) or Real Estate, it's hard to compare to other things.

> "market cap" assumes infinite demand for your currency

no... infinite demand would make market cap infinite also...

The phrasing probably wasn't ideal. I think they meant something different when they said "infinite demand" than what you mean.

I think what they mean is that it assumes that the demand curve, uh, I guess goes off to infinity (or just, some extremely large number which can be practically modeled as "infinity") near the current price,

meaning, that you could sell arbitrarily large amounts of it without substantially decreasing the price that people are willing to pay for it.

Which, yeah, that assumption seems false in practically relevant ways. If you sell a whole lot of [cryptotoken X], the price is likely to go down?

> The phrasing probably wasn't ideal. I think they meant something different when they said "infinite demand" than what you mean.

I think that I understand what you meant. By infinite, they just mean that there will always be orders on both sides around the current price... but for that to happen, you need to have about the same amount of orders on both sides (the amount of orders don't matter and could be very small).

Why would there have to be equal numbers of orders on both sides? If there are more buy orders than sell orders, that doesn't pose an issue for selling at the, --

oh, because weighting the price between the lowest open sell order and the highest open buy order based on how many there are of each? If the range between them is small enough, I think the effect of this can be neglected.

> Why would there have to be equal numbers of orders on both sides?

I think that it might influence opinions, robots and future orders... and therefore the current price (in the future).

In this context, "currency in circulation" refers specifically to coins and paper notes, not electronic or accounting forms of dollars.

Right. On the one hand, we're comparing the U.S. dollar value of all crypto-assets, and on the other hand we're counting the amount of paper currency and coinage.

Given that crypto-assets do not have a physical form, why compare on this basis?

Well, that's obvious. If you look at a more-comparable monetary stock measures (say, M2, which includes dollars in checking, savings, small time-deposits and liquid money market funds) you find that the U.S. dollar number is more like $20tn and it looks a lot less exciting.

Let's also ignore the fact that the "market cap" of a crypto-asset in U.S. dollar terms is not a cash equivalent because, and let me go out on a limb here, if you tried to find a buyer for every bitcoin in circulation your VWAP would not be the current spot price.

For Posterity: This is the market data taken from CoinGecko at the time of posting.

Coins: 7003

Exchanges: 459

Market Cap: $2,395,873,664,914

24h Vol: $221,081,504,173

Dominance: BTC 45.1% ETH 16.0% ETH Gas : 122 gwei


Dollars: $2,154,870,000,000

Crypto: $2,395,873,664,914

Carefully picked number #1 is greater than carefully picked number #2 to give false impression that this supports an unstated hypothesis.

Market cap is a strange way to frame crypto. Would you ever talk about market cap of USD or the pound? Transaction volume, unique addresses, stock to flow are more useful.

Money supply is a functional equivalent of market cap and is a rather common economic measure.

This really just seems like an odd statement to me.

The market cap of just the S&P 500, which is denominated in U.S. dollars, is over $30tn, which is 50% more than the M2 money supply of U.S. dollars.

So, explain to me again how these things should meaningfully be compared?

Money supply is possibly the number one metric that I use to evaluate investments.

The vast majority of people who buy bitcoin are using it as an "investment" so market cap makes sense here.

Um... OK. How much of global cryptocurrency is "in circulation"?

That is, US currency circulates, and crypto currency doesn't.

"Market cap" is a completely meaningless phrase in the crypto space. One of my least favorite things about crpyto in general is their frequent adoption of words and phrases that have actual meaning in traditional finance and then repurposing them for vaguely similar purposes to imply parity.

Why is it meaningless?

"Market cap" is borrowed from equity - the market cap of Apple for instance is determined by the number of shares of Apple outstanding x their price. But those shares have intrinsic value in that they grant you rights to a proportional amount of Apple's cash flow. If you were to destroy 50% of Apple's shares, the remaining half would be worth twice as much since the present value of Apple's cash flows hasn't changed.

Assets and currencies don't have market caps in any sense. Take a look back pre-Bitcoin and there are basically no references to the "market cap of Gold" or any such thing, they've all arisen due to the comparisons to Bitcoin. There's no intrinsic or underlying value, prices are purely trade driven. This doesn't make them "bad" per se, just completely different than something like Market Cap can capture.

As one other point for Bitcoin specifically, basically nobody knows how many Bitcoin are actually in circulation. There are a million+ lost / inactive. If someone moved a single BTC out of Satoshi's wallet, the price would very likely collapse nearly instantaneously. So how can a "market cap" be treated seriously if a single "share" trading hands at current market prices would collapse it. Bezos sells over $1 Billion of Amazon stock per year to no impact on AMZN.

If you take TRON though, for instance, you are getting a claim on the nearly continuous new TRON production though.

Same for LOOM and quite a few other cryptos.

There are 4.6 bitcoin transactions per second, how many dollar transaction do you think there are per second and what kind of volume of dollars are traded. Also there are different kinds of dollar in circulation, for example M2 is much higher (by a factor of 10) https://fred.stlouisfed.org/series/M2SL.

Bitcoin only represents about half of that "market cap" number though.

Bitcoin Cash and TRON, for instance, process more transactions than Bitcoin pretty regularly now. TRON even processes more transactions than Ethereum.

"Market cap" is never a measure of transaction volume.

A better question to ask is 'why it has meaning'.

Money supply has meaning because it's money in circulation.

If I print 1000 'Buddy Dollars' and sell one to a friend for $1000, it doesn't really mean that I have $1M in Buddy Dollars.

It might be helpful to compare the amount of USD spent on goods and services vs. the amount of Crypto spent on goods and services.

Because the value of cryptocurrency is strongly effected by the volume of buy and sell pressure. Market cap implies that a level of liquidity which is likely not present -- it can very difficult to sell large amounts of most crypto without at least temporarily tanking the value.

Market cap doesn't imply liquidity, not for equities either.

A larger market cap might be correlated with more liquidity, but you readily want to look at shares outstanding and average volume to measure liquidity. I don't see why crypto is special here.

Around 20% of bitcoin is believed to be lost if I remember correctly.

I wonder if there is a similar number for US paper currency?

I see the war on cash and untraceable financial activity is getting along according to plan.

I'm curious - are you skeptical about the efficacy of projects like zcash and monero, or just that they would be sufficiently widely deployed to serve the same role as cash?

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