We often hear different economic terms to be used in relation to cryptocurrencies – volatility, capitalization, price, value, etc. Today we are going to talk about Bitcoin‘s market capitalization and will see whether this digital gold really constitutes any significant part of world’s assets.
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- What is market capitalization?
- Bitcoin capitalization
1. What is market capitalization?
Market capitalization is quite a broad term. However, the first association that comes to mind is,of course, stock market. There is no single opinion on cryptocurrency but cryptocurrency can be called a financial tool that resembles both, money and shares. There is market capitalization of valuable securities, joint-stock companies and the whole market. Respectively,It is the price of a share, all shares issued by a joint-stock company and aggregated cost of all shares that circulate on the stock market. Back to the cryptocurrency, in simple terms market capitalization is an index of a total cost of all the coins. Market capitalization level depends on the cryptocurrency rate and they jump up and down together.
2. Bitcoin capitalization
Bitcoin is the first cryptocurrency in the world that was created in 2009. Today more than 17 million coins circulate in the world and the maximum possible volume of mined BTC is restricted to 21 millions. Such a size of Bitсoin emission is layed down in the cryptocurrency code and cannot be changed. One of the important functions of this model is inflation prevention. Only the fifth part of all the cryptocurrency reserve is to be mined and it will be done many years later. Considering the fact that every 210,000 mined block (one time in four years in average) slows down bitcoin mining two times when every new cycle begins. This formula allows to calculate that mining of 99% of all BTC will take 28 years and mining of the last 1% will take more than 100 years!
However, back to the topic of the first cryptocurrency capitalization. In 2016-2017 Bitcoin became a synonym to bumper profit and goodwill. Digital currency was growing so fast that its holders didn’t have enough time to celebrate every new pick that the BTC rate reached day by day. Many people raised good money at Bitcoin and some people made even decadently big money,considering the fact that it wasn’t necessary to make efforts to gain the profit. The same way, cryptocurrency is associated with easy money, fast profit and other attractive things. At the same time there are more and more opinions about the significant impact that cryptocurrency has on world’s economy. Some are concerned that further development of uncontrolled decentralized financial systems are dangerous, while others think cryptocurrencies can create a really free economy of the future where everyone is their own central bank. However is cryptocurrency and Bitcoin in particular really a big issue for the world’s economy? In other words, is the digital gold really a big part of world’s capital? Well, figures from the CoinMarketCap can help figure it out.
So, today (mid-September, 2018) the total cryptocurrency market capitalization exceeds $190 billion which is by the way 4 times less than in late December, 2017 – early January, 2018. Back then the total cost of all coins circulating on cryptocurrency exchanges was almost $800 billion. It may seem really a lot, but in fact even back then the whole cryptocurrency market was worth less than just a single company – Apple. August 2nd, 2018 the total cost of all stocks of this company exceeded $1 trillion. Given that the stock market capitalization currently amounts to more than $65.5 trillion, cryptocurrency market capitalization looks rather small.
So what place does bitcoin have in the cryptocurrency market capitalization?
As a number of altcoins appeared and started developing, bitcoin dominance gradually decreased. In 2013 it exceeded 92%, and decreased almost by 10% until 2016. In summer 2017 bitcoin dominance was hardly 40% and Ethereum was snapping on its heels. Today BTC dominates, having 57% and the index started increasing since May, 2018.
Anyway, back in 2012 bitcoin market capitalization was only $0.06 billion while in December, 2017 it exceeded $336 billion. Today it is a bit higher than $100 million and one BTC costs around $6.4 thousand.
As we already mentioned, the level of bitcoin market capitalization depends on the cost of every particular BTC. Today the cryptocurrency market seems to be starting to recover gradually from the rapid decline in the first half of 2018. At the same time, some experts believe that what we could observe in spring, 2018 was not really a collapse but just a correction of the rate after an unnaturally large increase in the end of 2017, when BTC was traded at $20,000 per a coin. In February, 2018, Jesse Powell, CEO and founder of a large U.S.-based cryptocurrency exchange called Kraken, told CNBC that capitalization of the cryptocurrency market could reach $1 trillion in 2018. So he basically expects it not only to recover lost ground but also increase its economic power. Moreover, it still remains an open question whether institutional investors finally “jump” into the cryptocurrency market, which will positively affect its capitalization. In July 2018, in a talk about bitcoin Maxim Balashevich, founder of an analytical company Santiment, told Forbes that “about a month ago we were just at the bottom of the 4th wave, and today we are in the 5th wave that should lead us to something between $25,000 and $50,000”.
So, can we expect a huge increase of bitcoin and cryptocurrency market capitalization in the longer term? Hard to tell. Anyway, today BTC`s capitalization is tiny as compared to the capitalization of stock market and it will probably take a long time for digital currencies to reach the level of huge public companies capitalization, even if they once again start increasing in value lightning fast.
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