Comparing the Market Cap of the Market or Specific coins is WRONG. Here's why.
I have noticed a trend that has been around for a very long time and I've been wishing for it to die, but it doesn't. I'm talking about Market Capitalization or Market cap for short.
You see it everywhere, Market Analysis, Predictions, Comparisons, Etc. All that is meaningless MOST of the time and all it does is scare the new adopters because how complicated it seems, and mislead current "investors" or adopters.
The Market Cap of a coin, does not reflect that it is neither good or bad. The reason for this, is because it is an artificial imaginary number that is completely meaningless on its own. Below, two examples by Aat de Kwaasteniet over at this article:
John starts a Cryptomunt and calls him the JohnDoeCoin. He sets up his blockchain software in such a way that at the start there are 100 million JohnDoe’s (the so-called premines). Then he goes to his friend William and asks if William wants to buy one JohnDoe from him for €10,-. According to the definition of Marketcap, the JohnDoeCoin now has a Marketcap of 1 Billion and in one go in the CMC lists around 10th place. Attention! There is only 10 Euro invested in the coin that according to the marketcap calculation is now worth 1 billion Euro.
This example is a shame of course because something more needs to be done before the JohnDoeCoin is included in the CMC list. Like, the currency must be traded on an exchange, there must be a certain continuity in the trade and with sufficient volume. But this is the theoretical principle.
A practical example with TRON.
The crypto coin Tron (TRX) has been in existence since 2017. TRON’s first complete listing will be published on CMC on September 29, 2017. The TRX is traded with a volume of 58,000 dollars/24h and for a price of about $0.0029 and there are 10 billion TRX coins from nowhere. So the Marketcap is about $29 million. This brings the TRX in the CMC ranking in 98th place.
Apparently the designers were a bit disappointed because 4 days later on October 3, 2017 the Circulating Supply suddenly is 40 billion coins. As a result, the Coinmarketcap is suddenly higher, at 109 million dollars, and TRON is about to rise to 50th place.
It’s not enough
The TRON bosses looked closely at the coins that were above them and thought: “If we put 25 billion extra coins on the market we are still rising considerably”. So on October 8, 2017, they put 25 billion coins extra in the market and TRON rises miraculously to a market cap of 167 million and that includes ranking 35. All this time between 29th September and 8th October, the trading volume is between 50,000 and 200,000 dollars per day. So here we see that the marketcap gives a completely fictitious value to the TRX that has only been manipulated by starting the circulation supply high and increasing it constantly.
Comparing the whole Coin Market Cap with Companies
There was a recent post, which I will not link, that compared the whole Coin Market Cap with companies like Apple and Amazon. This is such a ridiculous comparison that I do not even know where to start.
Do you think it would make any sense comparing the size of one of the big companies like Google with the whole "Tech Sector Market Cap"? Other than to calculate the market share, it makes absolutely no sense to make such a comparison, especially when considering that most of these coins have an artificial Market Cap as seen in our example above.
Sorry for this long rant, I am not a writer, nor a financial advisor, but these things are basic and people are using this constantly to make financial decisions and it is dentrimetal to the long term adoption of cryptocurrencies. Focus on backing up projects THAT SOLVE A NEW PROBLEM. There are altcoins out there that solve absolutely no problem and are an obvious cash grab. Be alert and be smart.