The Market Cap is an indicator well known to cryptocurrency enthusiasts and more broadly to the financial markets. Regularly used to judge the upside potential of a cryptocurrency, it is nonetheless questionable. Between genuine interest and unfounded beliefs, an overview of a valuable indicator for the rigorous investor.
The Market Cap: definition and usefulness
Like other assets, an investor in cryptocurrencies will always be interested in tools and indicators to measure their values. This value is essential because it makes it possible to identify development prospects, whether they are positive when a cryptocurrency is undervalued or negative when it is over-valued.
It is from this context that the Market Cap or Market Capitalization derives its interest. It is the result of two attributes common to all cryptocurrencies: the price and the number of units in circulation.
The simplicity of this calculation probably explains why the Market Cap is arousing so much interest. It is easily identifiable for each cryptocurrency, allowing them to be classified and categorized. This is the approach favored by CoinMarketCap and CoinGecko , two reference websites for information relating to the cryptocurrency market.
Various properties are commonly associated with the size of a Market Cap. Generally, a cryptocurrency with a low Market Cap presents a higher volatility risk than a cryptocurrency with a large Market Cap. While investing in the latter is therefore deemed to be a more cautious strategy , the associated upside potential is, on the other hand, lower.
Ethereum vs Fantom (FTM)
Take the example of two cryptocurrencies: Ethereum (ETH) and Fantom (FTM). ETH is ranked, as of December 2, 2021, the second largest capitalization in the sector at $ 536 billion, FTM being 40th at $ 5.3 billion. ETH therefore has a Market Cap 100 times greater than that of FTM. By keeping the same number of units in circulation, ETH’s Market Cap will need to increase by $ 530 billion to see its price double. FTM’s Market Cap will only have to increase “only” by 5.3 billion dollars…
Also, observing the Market Cap makes it possible to deconstruct the idea that a cryptocurrency whose price is low would have a higher potential to rise than those whose price is high . Indeed, at equal Market Cap, a cryptocurrency with a very high number of units in circulation will have a lower price than another, without this affecting its upside potential.
VeChain (VET) vs Internet Computer (ICP)
Let us now take the example of VeChain (VET) and Internet Computer (ICP), two cryptocurrencies whose Market Cap is almost equal: ± $ 7.3 billion. The price for VET, on the other hand, is $ 0.11 compared to $ 40 for ICP. This difference is explained by the number of units in circulation, which is 350 times higher for VET. Thus, despite these price differences, their upside potential with regard to the Market Cap alone is appreciably similar.
The Market Cap: a limited indicator
While the Market Cap can be useful as a comparison tool within the same asset class, it is nonetheless limited. The fault, among other things, in its two components: the price and the number of units in circulation.
The price, first of all, is that the meeting of supply and demand at a time T . For example, imagine that Alice makes the very first cryptocurrency transaction with Bob, for a price of $ 10. Does this really allow you to judge the value of this cryptocurrency? Obviously, no. The relevance of the Market Cap therefore depends on the “quality” of the price, namely the volume of supply and demand available: liquidity .
Moreover, contrary to popular belief, the Market Cap of a cryptocurrency is not equal to the quantity of money injected. When a Market Cap drops, for example, by $ 10 billion, that does not mean that this $ 10 billion has gone out of the market. It is therefore difficult to associate the notion of value with it.
Let us take the example of a cryptocurrency X whose price is 10 dollars and the number of units in circulation of 1000. The Market Cap of this cryptocurrency is therefore 10 x 1000 units = 10,000 dollars.
Alice, who owns 100 units of cryptocurrency X, decides to sell them to Bob for a unit price of $ 20. The value of this transaction is 20 x 100 units = $ 2,000. The new Market Cap for cryptocurrency X is 20 x 1,000 units = 20,000 dollars.
Thus, 2,000 dollars exchanged allowed the Market Cap to increase by 10,000 dollars.
The number of units in circulation, then, varies regularly according to the Tokenomics (economy of tokens) associated with a cryptocurrency. This Tokenomics is specific to each project and can include very disparate monetary issuance, distribution and scarcity mechanisms. The appreciation of the upside potential of a cryptocurrency thanks to the Market Cap emerges from this distorted, the future evolution of the number of units in circulation being neglected in favor of an appreciation at an instant T.
Moreover, by considering in its calculation all the units in circulation, the Market Cap does not exclude the units definitively lost following the loss of a private key or even following the death of its holder. However, these will never be in circulation again. A study published in April 2021 established, for example, that the number of bitcoins actually in circulation would never exceed 14 million, against the 21 million initially provided for by the protocol.
Finally, the Market Cap is obviously not an indicator making it possible to judge the fundamental quality of a project, the innovation provided, the developers involved, the loyalty of a community, etc. These are all factors on which the upside potential of a cryptocurrency also depends.
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The Market Cap: a self-fulfilling prophecy?
The search for a metric to estimate the upside potential of a cryptocurrency leads the investor, even educated to sometimes forget an essential element: irrationality .
If the majority of investors think they find in the Market Cap a reliable estimate of the value of a cryptocurrency, do they not end up being right? By using this indicator on a daily basis to judge the potential of a cryptocurrency, don’t they end up giving it real use, like a self-fulfilling prophecy?
Self-fulfilling prophecies are particularly bound to take place in an environment such as that of finance, where the psychology of individuals and speculation collide. A factor that cannot therefore be overlooked.
Thus, if the Market Cap is too limited an indicator to resolve on its own to an equation as complex as that of the upside potential of a cryptocurrency, it is nonetheless interesting within an asset class that responds to the same codes and benchmarks. And while the markets have been shaken up a bit in recent days, continue to do your homework as a wise investor by reviewing – as a precaution – the 10 fundamental rules for preparing for a bear market.
Crypto News: Ubisoft names Tezos for its NFT Gaming platform
It’s been a while since video game giant Ubisoft entered the cryptosphere. Among the projects favored by the French company is the Tezos network (XTZ), of which it became a validator in April 2021. Today, it is NFT of in-game equipment from its latest game that Ubisoft will offer thanks to at Tezos.
Tezos serves as the backbone for Ghost Recon game
By their unique nature , enabled by blockchain networks, non-fungible tokens (NFTs) are a perfect digital transposition for cards and collectibles .
Ubisoft understands the strong potential that NFTs represent for gaming , and has just announced the latest fruit of its association with the Tezos crypto project . From this Thursday, December 9, 2021, the video game company will launch the beta version of its NFT platform , called Ubisoft Quartz .
As the Ubisoft teams explain in a press release as well as on Twitter, their latest game “Tom Clancy’s Ghost Recon Breakpoint” will be the very first to benefit from 3 of these exclusive NFTs, called “Digits” on Ubisoft Quartz. And these will therefore be based on the Tezos blockchain.
NFTs: Ubisoft’s first crypto-foray before the metavers?
The technologies carried by cryptocurrencies create a whole new universe of concrete applications . Whether these are in their infancy or even yet to be imagined, they provide a glimpse of a strong potential for development in a field such as that of video games.
“The digitization of our world has dramatically accelerated changes in the way users and communities interact online. As blockchain technology matures (…) it begins to find more concrete uses in our daily lives. (…) Likewise, new economic models are appearing, play-to-earn being perhaps the most important, with the sale of virtual land. (…) “
Didier Genevois, Ubisoft blockchain technical director
Moreover, the teams of the video game giant are already setting out their future ambitions in the press release announcing Ubisoft Quartz: the construction of metaversees for gamers.
“Our long-term efforts have led us to understand how the decentralized approach of the blockchain could truly make players players in our games, (….) Ubisoft Quartz is the first brick of our ambitious vision to develop a real metaverse. (…) “
Nicolas Pouard, vice-president of Ubisoft’s Strategic Innovation Lab
In addition, the Tezos blockchain is based on Proof of Stake (PoS) consensus, which is much less energy intensive than Proof of Work (PoW). The recent revelation of the very low power consumption required to operate Tezos has annihilated any form of ecological criticism possible, especially given the usefulness and benefits provided by the decentralized trust networks that are blockchains.
BitMart hack: Shiba Inu and Huobi to the rescue
BitMart receives support from Huobi and the shiba inu community (SHIB) following its hack. One offers concrete help, while the other shows above all its solidarity with BitMart in a symbolic way.
BitMart hack: Huobi on the trail of stolen funds
On December 5, 2021, Huobi said in a tweet that the platform “will do its best to help” the BitMart exchange, which on the same day suffered a hack of more than $ 196 million in cryptocurrency. Huobi will report in particular the stolen assets that will pass through its platform .
For Huobi Global Strategy Director Jeff Mei, transparency and responsiveness are the right answers to these attacks:
“Exchanges should alert their users, other exchanges and law enforcement authorities as soon as possible and be transparent about what they are doing to deal with hacking and the loss of user funds. “
The emotional support of the SHIB community for BitMart
The SHIB community also showed its solidarity with BitMart , while recalling the efforts it is making to analyze possible flaws that could expose the decentralized exchange ShibaSwap to possible attacks:
“Even though the heart of our project is decentralization, we want to show our support and give some love to our friends at @BitMartExchange who are already working hard to resolve the security incident that happened yesterday. “
BitMart CEO Sheldon Xia tried to reassure users of the exchange who were victims of the hack, suggesting that the company is looking for several solutions to reimburse all the stolen cryptocurrencies :
“We are also talking to multiple project teams to confirm the most reasonable solutions, such as token exchanges. No user assets will be harmed ”
BitMart, however, had to temporarily stop all withdrawals and deposits following the hack, and expected a recovery no later than December 7, 2021, which is today.
BitMart increases the statistics in terms of hack in decentralized finance. While the cryptosphere registers less fraud, DeFi is an exception. The sector is today the preferred target of hackers . Not sure that inter-exchange solidarity or between crypto players in general is sufficiently dissuasive for hackers who can siphon millions of digital assets in a few clicks.
Crypto News: Colombia’s Largest Bank Now Trade Bitcoin
Bitcoin in the midst of conquering South America – Colombia has many players who are in favor of Bitcoin (BTC) and cryptocurrencies . This fact is once again demonstrated with Bancolombia, a large multinational banking corporation, which will allow exchanges of BTC as well as 3 other crypto-assets.
Banks are starting to embrace Bitcoin and cryptos
If El Salvador has made Bitcoin a national currency , other Latin American countries are starting to integrate crypto-assets into their economy. This is the case in Colombia , via the Bancolombia bank , which is part of a large banking group also including banks in Panama (Banistmo) and Guatemala (BAM).
With its nearly 18 million customers , the Bancolombia group has just announced its partnership with the Gemini cryptocurrency exchange platform . In a press release issued on December 6, Gemini and Bancolombia announced in effect that they will provide a number of customers in the large bank of entry gateways and output in fiat currency to exchange Bitcoin (BTC) Ethereum (ETH), Litecoin (LTC) and Bitcoin Cash (BCH), via the Winklevoss brothers’ crypto-exchange.
This banking crypto-trading experience, which will begin on Tuesday, December 14, 2021, will first – initially – be offered to a small group of Bancolombia clients.
The Gemini crypto-exchange expands its offer and weaves its web
Based in New York , the exchange platform for twins Winklevoss has mainly developed its ecosystem in North America so far, but is now actively seeking to internationalize .
“This partnership is an important step in the strategic expansion of Gemini’s presence in Latin America. We look forward to working closely with the Colombian crypto ecosystem, and supporting crypto-assets that empower Colombians to take control of their financial lives. (…) Cryptocurrencies are borderless by nature, and we are committed to expanding access to crypto to as many people as possible around the world. (…) “
Cynthia Del Pozo, Strategy and Development Director for Gemini
The integration of Gemini’s offer into Bancolombia is supported by a pilot program of the Colombian government. The local financial regulator, the Superintendencia Financiera de Colombia (SFC), is thus responsible for facilitating access to cryptocurrencies for the citizens of Colombia.
In October, another South American country was profiting from the incursion of cryptos into its economy. Indeed, Peru has since benefited from a stablecoin of its national currency (the Peruvian sol) which is called PEN, and which is based on the Stellar network (XLM).
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