Crypto Market Cap Matches World’s Top 10 Banks – But is it an Illusion?
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Crypto Market Cap Matches World’s Top 10 Banks – But is it an Illusion?

The term 'market cap' stems from the world of traditional finance—which differs largely from the digital asset space.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

When push comes to shove, from where can financial power be exerted to its greatest effect: banks or crypto markets? While this milestone is to be celebrated as a sign of things to come, it bears keeping in mind the nature between the two ecosystems.

Combined Force of All Cryptocurrencies Matches the World’s Top 10 Banks

As the pool of people who are familiar with the crypto world deepens, its market cap will follow suit. At press time, the entire crypto market cap is worth $2.25 trillion, which is closely equivalent to the combined market cap of the world’s top 10 banks, spanning the US, China and Canada.

Image credit: The Tokenist, source: companiesmarketcap.com

Of those altcoins, Ethereum has been critical in the evolution of the space. Its smart contracts made it possible to mimic real-world institutions and then remove the corruptible and costly mediators. Ethereum’s ongoing 2.0 upgrade from energy intensive proof-of-work to proof-of-stake should make it scalable and future-proof.

In the meantime, the explosion of NFTs as cultural artifacts immortalized on a blockchain has triggered another wave of mass interest and dabbling in the crypto world. Combined with the innovations of specialized altcoins that tokenize human activity from gaming and file sharing to stablecoins and advertising, the crypto world is bursting with creativity and potential. However, with all that said, what does it mean to say that something has a certain market capitalization?

How is Market Cap Determined in the Off-Chain World?

In the traditional world of stocks, a company’s market cap is calculated by multiplying the total number of its shares. Let’s take Tesla (TSLA) as an example: 960 million outstanding shares times its current stock price of $737 per share makes for a $705.6 billion market cap. However, because Tesla is still struggling to make profits (it made more from its recent BTC investment than profit generated in all of 2020), its stock price is largely a matter of perception.

Image credit: TradingView, Tesla’s stock price chart.

Elon Musk is a huge part of that perception as a vanguard entrepreneur who has his fingers into seemingly every cutting-edge tech pie—space rockets, neural interface, global satellite network, hyperloop, etc. In terms of Tesla’s stock, it has become a matter of social prestige to own such a car, despite other companies showing more potential in delivering affordable EVs.

Moreover, it has been taken for granted by now that governments will slowly deregulate gasoline vehicles out of existence. Likewise, Tesla’s stock holders count on its gigafactories to come online, alongside further battery technology improvements. All of these factors contribute to forming a company’s share price, which then forms its market cap.

In light of this, it is important to understand how market cap is created in the crypto world. And perhaps more importantly, it’s crucial to understand the implications of such differences.

How is Market Cap Determined in the Blockchain World?

When DeFi first took off in last year’s ‘DeFi Summer’, we saw massive price spikes of governance tokens. Bubbles had been bursting left and right in this space. While this was predictable and the prices eventually stabilized to some degree once the novelty wore off, it is important to keep in mind the inherent volatility of fungible digital assets.

Because such assets are anchored in the world of malleable digital code, their market cap formation departs from the traditional world of finance. To make this point clear, imagine a hypothetical scenario. A group of individuals gather to create an ERC20 altcoin with the goal of it reaching a $1 billion market cap.

  • They accomplish this goal by creating a decentralized exchange (DEX) to exchange it.
  • They limit the coin’s total supply to 100,000.
  • All the team members trade the coin between each other, with zero fees.
  • They agree between each other the coin price should be at $10k.
  • They create a trading volume by accounting entries for virtual dollars, similar to stablecoin accounting.  

And before you know it, you have a market cap of $1 billion—the number of total coins in circulation times the price of each token. While there are many obstacles to making this happen—auditing and media coverage as the first walls to break through—this extreme scenario shows the power of crypto fungibility.

Is Market Cap an Accurate Metric for Digital Assets?

Without building factories and products, it is possible to have such market caps. If you think Tesla’s market cap relies too much on perception, this pales in comparison to the crypto world. People are placing bets on Ethereum alternatives, competitor protocols within same niches, on promising new ecosystems, etc.

Most agree that it’s not nearly as bad as the crypto market’s first major bull run, which we saw in late 2017. The space has matured in many ways since then. Many digital asset products of today actually draw value from their utility, which is why the Bank of America views DeFi as a greater threat than Bitcoin.

Still however, if we just look at the numbers, crypto’s entire market cap rivals that of the world’s top ten banks, combined. If we look a little deeper however, with an honest eye, we may see something a little different.

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What are you thoughts on the ‘market cap’ metric applied to digital assets? Let us know in the comments below.

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