What is the real market value of cryptocurrencies like Bitcoin?
The numbers used to explain the performance of Bitcoin and other cryptocurrencies are less meaningful than most assume.
Cryptocurrencies are not exactly like stocks, and cryptocurrency exchanges do not work like traditional securities markets. As a result, many crypto-asset investment strategies based on conventional definitions of market share, capitalization, volatility, and trading volume are deeply flawed. Misleading numbers mean that cryptocurrency valuation and adoption is poorly understood, which creates a false perception by the media and investors about cryptocurrencies such as Bitcoin. One implication of this analysis is that Bitcoin has captured the vast majority of the long-term upside in the cryptocurrency market despite having about half the nominal market share.
Most cryptocurrencies and crypto exchanges manipulate numbers in ways that publicly traded companies and traditional exchanges like NASDAQ and NYSE wouldn’t dream of. As a result, “market capitalization” and “trading volume” are at best rough and relative measures of cryptocurrency adoption. Even when intentional manipulation is not involved, crypto-asset markets fundamentally just do not function like securities markets. It’s important to understand these differences to asses the state of cryptocurrency and crypto asset adoption.
Let’s look at three important differences between how cryptocurrencies and traditional securities markets work: