Bitcoin - Market Capitalization
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This article explains why this argument is utter nonsense. The flawed reasoning is as follows: This terminology is borrowed from equities, where the market cap of a company is the price per share x number of shares outstanding. So, you divide by the number of bitcoins But this argument is wrong. The marketplace for financial assets including bitcoin can be described by an order book: Traders use order books for price discovery and for executing trades — you can see the cheapest price someone is willing to sell bitcoins for, and the highest price someone is willing to pay for bitcoins.
The order book currently looks blank, like this:. Well, since there are no prices and no bitcoins have changed hands, the market cap is undefined at the moment.
Now, say, you want to buy a bitcoin from one of your friends. The order book now looks like this:. If they want to sell more than 1 BTC, then they are out of luck: These are wildly different numbers! But as the bitcoin target market cap books fill up ie more liquidity is availablethe best bids and best offers start to converge.
Also, no trades have happened yet at all, and you and your friends are just suggesting prices you are willing to trade at. We can continue to build up this order book, and the best bitcoin target market cap price and best offer price will converge.
Here is bitcoin target market cap order book a few minutes later:. And the market cap of bitcoin could be described as any of:. Note that these are different to the previous market caps when the order book was emptier.
So the market cap s can change even without any trades taking place. The gold argument says that money could flow out of gold and pumped into bitcoin, increasing its market cap, and therefore increasing the target value of a bitcoin. So now we have an actual traded price! And the market cap of bitcoin could be best described using the last actual traded price instead of theoretical prices:. How much money do they need to spend? And how does the order book look after this trade is executed?
According to the gold argument, what would the expected price of a bitcoin be? Market prices and therefore market cap can also change without any trades taking place. She cancels the order. These market cap numbers are very different to the numbers before those two orders were submitted.
All of the market caps except last have changed… without any trading taking place at all! So the market cap can change without any trades taking place. This happens in practice. This means that the bid, offer, mid market caps can change significantly without any trades. So the market cap is derived from the market prices bid, mid, offer, lastand the market prices can change without any trades happening. And even a very small trade at a new price can alter the market cap last. Having said that… yes of course, if there are more buyers with a greater desire to buy and pay whatever it takes to accumulate BTC, then the prices bid, mid, offer, last should increase.
A bitcoin target market cap article and not something most people involved in Bitcoin understand. It is important to learn that, as otherwise the HFTs and Prop Traders will have full control of the market.
How about valuing bitcoin this way. Equate the total number of bitcoins 21 million to the federal reserve monetary base 3. You can equate the total number of bitcoins to anything stars in the galaxy, grains of sand on the beach and come up with ridiculous numbers. How do you justify equating them to the federal reserve monetary base? I have read all your articles, fantastic reading to get a thorough understanding from soup to nuts!
You are commenting using your WordPress. You are commenting using your Twitter account. You are commenting using your Facebook account. Notify me of new comments via email. Order books The marketplace for financial assets including bitcoin can be described by an order book: The order book currently looks blank, like this: The order bitcoin target market cap now looks like this: What is bitcoin target market cap price of Bitcoin?
So a market cap of bitcoin, based on the bid price is: So the market cap of bitcoin could be described as any of: And now the market cap of bitcoin could be described as: Here is the order book a few minutes later: And the market cap of bitcoin could be described as any of: Pumping money into bitcoin The gold argument says that money could flow out of gold and pumped into bitcoin, increasing its market cap, and therefore increasing the target value of bitcoin target market cap bitcoin.
And the market cap of bitcoin could be best described using the last actual traded price instead of theoretical prices: Total cost to buy 14 BTC: Prices can also change without trades taking place Market prices and therefore market cap can also change without any trades taking place. So how does the order book look after your trade? Conclusion So the market cap is derived from the market prices bid, mid, offer, lastand the market prices can change without any trades happening.
I appreciate your simple way of bitcoin target market cap complicated matters. Keep up the good work! No money coming or going argument. It puts things bitcoin target market cap perspective. Thank you for your comments though. Leave a Reply Cancel reply Bitcoin target market cap your comment here Fill in your details below or click an icon to log in: Email required Address never made public.
