Of Markets and Caps - The Daily Gwei #219

But have we *earned* it?


It’s pretty wild to see that the total market cap for all of crypto is now over $2 trillion when just 1 year ago it was around $200 billion. Of course, Bitcoin accounts for most of this with a $1.1 trillion market cap with Ethereum firmly in second place at a $250 billion market cap. After this, we have a bunch of other assets with market caps between $10 billion and $50 billion and the craziest thing is that the top 100 now have a market cap of $1 billion or more.

The market cap metric has always been a bit of a weird one for me because there are so many different ways to measure it in the crypto space. The 2 main ways it is measured is via circulating market cap and fully diluted value (FDV). The circulating market cap is simply a calculation of how many coins are in circulation multiplied by the current price whereas the FDV is calculated by taking the total coins that will exist (circulating or not) and multiplying it by the current price. Though neither of these 2 measures actually paint the full picture and they skip most of the nuance entirely. The clearest example here is Filecoin which currently has an enormous $340 billion FDV (larger than Ethereum!) but this figure is not at all accurate.

There have been many attempts at creating better ways to measure a crypto-assets market cap and one that I personally like is called the ‘liquid market cap’ which was created by the Messari team. The liquid market cap is calculated by taking the ‘liquid supply’ of an asset and multiplying it by its current price. Messari defines liquid supply as “the number of units that currently exist on-chain and which are not known to be encumbered by any contracts.” Of course, coming up with an accurate figure using this methodology is still difficult so the liquid supply metric is imperfect but I believe it’s probably a better one to look at than the others.

So, as an investor, how do you actually evaluate these assets? Well you start with looking at where all of the supply currently is. How much of it is coming to market in say, the next 5 years and at what rate? Who is receiving the tokens - is it VCs/funds and team or is it yield farmers - or is it both? Is there any deflationary pressure on the token that burns supply over time? How concentrated is the supply? How much liquidity is there to absorb any sell pressure that comes from new tokens entering the market? How much fundamental demand is there for this asset? Does the project that this asset belongs to actually have a good chance of success? How high is the circulating market cap and fully diluted value (aka is it already overvalued)?

As you can see, evaluating this sort of stuff can be quite difficult and there is a lot to consider when choosing which assets to buy. Layer on top of this a frothy bull market where people don’t seem to care about any of what I’ve mentioned above and it gets even harder. I don’t have the answers to all of these questions and I obviously can’t tell the future but, as always, I’ll continue to play long-term games regardless of market conditions.

Have a great day everyone,
Anthony Sassano


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All information presented above is for educational purposes only and should not be taken as investment advice.