Capitalization of cryptocurrencies

The impressive dollar market capitalization of cryptocurrencies is, without a doubt, an important and misleading aspect for thousands of investors, nothing more than a fake. Why such a statement? Everything is simple.

First of all, you need to understand more about best cloud mining, how this market cap is calculated, after which you will immediately understand why the market cap of cryptocurrencies cannot be real.

After an ICO, a token giveaway, or a fork, new coins appear out of nowhere. Some of them are tokens that live in smart contracts on the Ethereum blockchain, others are coins that have their own blockchains and specialized wallets. Whatever the generation process, there are now X new coins somewhere.

The first thing to do after creating a coin is to try to get it quoted on one of the major cryptocurrency exchanges. There is usually a community that believes in new coins and has invested in an ICO or other generation process. This community can be urged to vote for the listing of the new coin on Binance, Bittrex, etc.

Once accepted on a major exchange, the coin is listed as a trading pair. For example: ETH/BTC, ADA/BTC, etc. – note that there is usually no USD/NEW pair. This new trading pair is now displayed like a traditional stock market trading system, with bids, asks and a system that matches the highest bids with the lowest asks and gives investors the best possible trade.

But, unlike traditional stock markets, instead of trading stocks for dollars, you trade one cryptocurrency for another. So, trading volumes are not measured in dollars, but in cryptocurrency pairs.

As you can see, there is no direct conversion to dollars. In dollars, euros and other major currencies, only those cryptocurrencies that are directly bought or sold for these local fiat currencies are quoted. And this is in 99.9% of cases Bitcoin.

So why is the capitalization of cryptocurrencies a fake?

Simply put, the market capitalization of cryptocurrencies is fake because most cryptocurrencies cannot be traded for dollars. Seems obvious enough, but it’s not.
Bitcoin Cash now lists a market cap of $25>B. Sounds incredible. But if you try to cash out just 0.1% of that amount – also a lot of money, no matter how slowly you do it, the price will quickly rush to zero.

Imagine that you have generated 1 billion tokens or coins, and once they are listed on the exchange, the first transaction made will set the price. Then the market cap trackers will multiply this initial price of one trade by 1 billion – and this will be the total market cap, even if only one coin was bought.

This is an extreme example as no successful coin/token would last long on the first page of CoinMarketCap if it was that weak and CoinMarketCap has an algorithm to avoid this.

There is also a significant degree of self-regulation in the cryptocurrency markets, where information flows quickly and markets adapt in real time. If a worthless cryptocurrency is artificially overvalued, everyone who owns it will simply dump their coins and the price will immediately drop.

Bitcoin Gold is a good example of a fake market cap. Immediately after the fork, it traded at $479. Since 16+ million BTG automatically spawned—since it was a fork of Bitcoin’s main blockchain—multiplying $479 by 16+ million gives us a market cap of over $8 billion, even though not a single dollar was spent on BTG. If even a tiny percentage of BTG holders try to convert their coins into dollars, they will be in for a nasty surprise.