RealCoinCap is an innovative indicator to compare the value of cryptocurrencies opposed to the existing method to cryptocurrency market capitalization. According to Germany-based entrepreneur, Axel Pinckert, the prevailing way market cap of any coin is being calculated is inappropriate. Using the current method market cap on coins can easily be overblown which directly reflects on the ranking of cryptocurrencies.

Hence, the entrepreneur introduces an effective method, RealCoinCap, which allows comparing market cap of cryptocurrencies more accurately. Pinckert claims that the new method gives the real market value of coins which is not affected by inflation.

Current Method to Calculate Market Cap

In order to understand and compare the proposed concept, it is important to know what market cap is and how it is calculated at the present time. According to Investopedia, market cap is the gross market value of company’s outstanding shares. In simple words, it refers to the product of company’s outstanding shares by prices of a single share.

Therefore, it works as an index to measure the value of the company, in this case, the value of a cryptocurrency. The crypto space has embraced the same method to determine the value of digital assets. However, the same concept is not that effective when comparing different coins.

The majority of market participants speculate on cryptocurrencies based on movements in the market cap. However, with the current concept, it is impossible to find an equitable market value of any coin including major coins such bitcoin, ether or litecoin. Cryptocurrencies are very different from traditional asset classes and, as a result, it is unfair to evaluate them with traditional methods.

Manipulation of the Market Cap

Pinckert claims that the present market cap formula permits easy manipulation of price and market cap. Manipulation in price has been evidential with methods prevailing in the market such as “Pump and Dump,” FUD, manipulation by whales and many more. As price is an important factor to calculate market cap, any manipulation in it can affect the market cap.

Pinckert provides an example of how the supply of coins is also being juggled. He explains, an Apple cost $1, whereas Oranges cost $10, which looks cheaper? He states “As soon as you get closer, you start realizing that you can get one apple for 1$ or 10 oranges for 10$.” Hence, it means that price of one apple and one orange is equal, i.e., $1.

Normalized Market Capitalization

Although, it is not as simple as the example provided when it comes to cryptocurrencies. The main reason is why it gets a bit tricky is because the supply of all cryptocurrencies is not equal. A major drawback of using the current method to calculate the market cap is the absence of delineated measurement unit, whereas in traditional financial markets we have standardized measurement units, for instance, in the stock market a share is such a unit.

To further explain the downside of the system, Germany-based Pinckert assumes a coin “NoSatoshicoin” which has huge supply limit equal to 21 million coins multiplied by 100 million. So when the token begins trading, a minor rise in the value of a single coin, let’s say 0.00000001 BTC, can surpass market cap of major cryptocurrencies, maybe even bitcoin. Therefore, making it very easy to manipulate the market cap of the coin. This is the reason why new unheard coins surprisingly appear on top 20-30 coins list.

RealCoinCap = the new formula to determine market cap

In the RealCoinCap formula,  market cap equals to the price of asset multiplied by normalized supply.

So it looks something like this:

RealCoinCap (More accurate Marker Cap) = (Price of Asset) x Normalized Supply.

So what is Normalized Supply? In order to compare two cryptocurrencies, we must to define a measuring unit. To get the actual supply of coins, it is necessary that to use the least divisible unit. In case of cryptocurrencies, Satoshi is the smallest unit. Using the defined measuring unit will generate what the entrepreneur calls “Normalized Supply.”

So to compare market cap of tokens, one must normalize the supply by using Satoshis as the measuring unit and then apply the formula. Before applying the new formula to the presumed NoSatoshiCoin, it is necessary to set a relation between supply units. Here is the breakdown from Pinckert:

“1 NoSatoshi unit = 100,000,000 Satoshi unit

Then, we divide both sides by 100,000,000 (bitcoin units)

1 NoSatoshi unit / 100,000,000 Satoshi unit = 1”

Pinckert further explains the derived result can be employed to convert the NoSatoshiCoin supply to Satoshis by multiplying. “ In this case, it means dividing the supply of NoSatoshiCoin by 10⁸,” states Pinckert.

The obtained RealCoinCap will be 100 million short of the market cap with the existing market cap formula. Coin rankings based on RealCoinCap can be found here. Additionally, it also provides an adjusted price list as well where Satoshi is designated as the base unit.

Comparison of the Top 15 using Market Cap vs. Real Market Cap

The image below compares the coin rankings based on RealCoinCap and CoinMarketCap’s market capitalization. The major difference is that Cardano, EOS, IOTA, NEM, Ripple, and Tron do not appear in the former, while Ethereum Classic, Dash, and Monero, along with others, are ranked higher.

RealCoinCap is a more accurate method to obtain the market cap as the measurement units do not change. The method makes manipulation harder than the existing gauge for market cap.

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Author: BTCManager.com