Thread by @ChingasX

Let's talk about MCAP...

I've had a few conversations over the last week about MCAP and there seems to be a fairly common thread of confusion.

To be fair, it can be very confusing but it really doesn't need to be at all.

Let the thread Begin:

Market Capitalization or MCAP for short is what is considered as the total value (in this case USD) for a particular token/coin.

The number is derived by a very simple formula:

Current Price (USD) multiplied by the current Circulating Supply

For Example:
BTC MCAP = Current Price of $9517.05 X Circ Supply of 17,842,262 = $169,805,781,137

Easy Right?

Lets do another:

LTC MCAP of $5,490,795,140 =
Price - $88.77 multiplied by Circ - 62,853,018

So, it's pretty straight forward.
That would be great if the conversation ended there but it never does, does it?

It goes on to Value and Speculation and then the question always comes up, "Why is X Coin only $0.xx"?

Yeah, I know. I worry about the new cats when they start rolling thru.

I've had a lot of conversations lately from non-coiners thinking about getting into Crypto for the first time.

The follow up is always the same...

"I saw XRP, XLM, ADA and TRX are all way under $1"

"Even if those guys do half of what Bitcoin did, I'm set for life"

And then the conversation evolves from MCAP to Circulating and Max Supply.

See, if every coin had a predetermined Max Supply and they all had the same amount of current Circulating Supply this would be easy...

BUT THEY DON'T...
So, I break out my analogy book and I try to speak a language everyone can relate to.

Microsoft and Netflix

Yeah, you traditional and options traders know where I'm headed with this one don't you?

I pose the question - Which company do you think is more valuable in $
Microsoft which currently trades at $141.34
or
Netflix which currently trades at $355.78

The Answer is Microsoft.
Currently the highest valued company in the world sitting at Number 1 MCAP
Netflix - No. 59

But how can this be? Netflix is trading way higher than Microsoft.
It sure is.
Nonetheless Microsoft has a Market Cap about 7X more than Netflix sitting around $1.083 Trillion compared to Netflix at $147 Billion

Any Questions - One Second

Outstanding Shares for this purpose is similar to circulating supply in which the 7,662,374 outstanding shares that Microsoft has is way more than the 437,786 outstanding shares Netflix has.
$141.34 X 7,662,374 = $1.083T
$335.78 X 437,786 = $147B

You see, Netflix has 17X less outstanding shares than Microsoft and is 7.3X less valuable in total Market Cap.

Netflix would need to trade at $2451.19 a share to have the same Market Cap as Microsoft and retain it's 437,786 outstanding shares.

Let's just say a simple stock split straight up in half for Netflix would Half the current Price to $167.89 and Double it's outstanding shares to 875,572 BUT the Market Cap would stay the Same at $147 Billion

Ok, back to Crypto...

This example comes up all the time because XRP and BTC are both Majors - (MCAP over $10 Billion) and they couldn't be further away in Price Per Coin

You should have a much better understanding now about one of the key reasons why. Supply

BTC - Circ Supply = 17,842,262
XRP - Circ Supply = 42,832,704,971

That's a big difference

So while BTC is trading at $9517 it only has 17.8 M floating around while XRP trading at $0.31 has 2400X the amount of coins.

So, calculators out please - Let's do some math

Let's say XRP did not have 2400X the amount of coins circulating about and instead only had 17.8M, like Bitcoin. What would that look like?

$746.85 is what it would look like. Per Coin.

Thats a fairly big difference from the $0.31 it is currently valued at.

To be fair, if Bitcoin had a circulating supply of 42,800,000,000 coins, it's current value of $9500 a coin would get slashed down to just $3.96 a piece.

So, perspective is something to keep in mind when looking thru these coins, especially when looking at what it would take for something to 10X, 100X, 1000X and 10,000X. Remember that the MCAP has to go up with it.

Another very important thing to consider and then I'll wrap...

Total Supply...Ahh yeah, almost forgot.
So, current price is great, circulating supply is great, we are all very happy with the current information and then BOOM, the circulating supply increases!

What happens every time we add supply to a limited resource?
Value goes down.

So, back to our Bitcoin XRP example:
Bitcoin - 17,800,00 circulating (ish)
Bitcoin - 21,000,00 Total (ish, yes I know it's actually more)
XRP - 42,832,000,000 (ish)
XRP - 100,000,000,000 Total (ish)

BTC = 84% out with 16% Remain
XRP = 42.8% out with 57.2% Remain

So, If Everything were to stay exactly the same EXCEPT circulating supply were to increase, we can theorize that the value per coin would go down as the MCAP stays the same.

16% drop is much easier to swallow than a 57% drop

Of course the world will not be put on pause...

Traders will trade, investors will invest and we will all hold hands and sing Kum ba yah. Well maybe not so much the singing part but you get the picture.

This is a volatile market and things change by the second.

If you already knew this and I Missed something, let me know.

And that about wraps it up.
This is not a debate nor is it something I really want to argue about.
I just want to help people understand in case they are a little confused on the topic and maybe shed some light on an area not discussed in detail to some of the new peeps.

If you made it this far, I truly am impressed and for that you get yourself a big ol double high five!

🙌

I truly hope this helps someone out there.