Bitcoin’s massive plunge in valuation recently has shook the cryptocurrency market. The world’s largest cryptocurrency falling below the decisive $10k support following Libra’s ‘interrogation’ before the United States’ Senate Banking Committee has many analysts doubting their bullish predictions. However, despite the fact that most short-term metrics were bearish, the king coin’s ‘realized capitalization’ was at an all-time high.
At press time, Bitcoin’s market capitalization stood at $169 billion on CoinMarketCap. The king coin’s realized market cap however, was recorded at $93.45 billion on July 16th on Coin Metrics.
The market capitalization metric is deployed by many in the cryptocurrency realm, without realizing the irregularities associated with it. The application of market cap in crypto-assets is not effective, simply because these operate differently than traditional assets. The market cap metric takes into account all the coins that are ever mined, totally disregarding the fact that unlike traditional equities, crypto-assets get lost or are unclaimed or as CoinMetric stated, “become inert through bugs.”
The idea that “long lost and unrecoverable coins can affect BTC’s capitalization” gives a skewed value for the network, something that can be replaced by a more appropriate methodology and a slightly different approach called “Realized Capitalization.” While not deviating significantly from the market cap, this methodology eliminates the need to highlight “lost coins,” while only considering coins that are currently in circulation.
Coin Metrics further elucidated,
“The realized cap attempts to improve on the market cap by trying to discount coins that might be lost. Its crux is to value different part of the supplies at different prices, instead of using the daily close as market cap does.”
While recent weeks have not been kind to Bitcoin, the world’s largest cryptocurrency recording its highest ever realized market cap is good news for the market. This development adds to the fact that Bitcoin’s dominance in the market is at its highest level in the last 2 years.