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Comparing Bitcoin and Other Cryptocurrencies by ‚Market Cap‘ Can Be Very Misleading

Many cryptocurrency traders like to compare different digital assets by market cap, but a clearer picture of reality can be gained by looking at other metrics.

Although bitcoin was launched as the only cryptocurrency in the world back in 2009, there are now thousands of alternatives that can be traded on various online exchanges. Many cryptocurrency traders track the price of these digital assets on sites like CoinMarketCap.com, but the key metric that is most often used to compare these cryptocurrencies, market cap, can sometimes be misleading.

Having said that, there are a few alternative metrics that can be used to compare the different digital assets found in the world today.

What’s Wrong with Market Cap?

While market cap is usually a useful metric for tracking the total valuation of a company, the same is not true in the world of cryptocurrencies. This is because there are often situations where the units included in the calculation for a coin’s market cap — simply the number of coins multiplied by the current price in US dollars — are not easily available for trade.

For example, the long-forgotten Auroracoin, which was targeted towards citizens of Iceland, was said to have a market cap of over $1 billion back in early 2014, but the reality was that a large number of the coins were locked up and unavailable for trade because they had yet to be airdropped onto the Icelandic public. In reality, the Auroracoin market cap was closer to just over $10 million.

Steem was another notorious example of an inflated cryptocurrency market cap. The market cap was reported as more than $400 million in July 2016, but this was due to a large amount of Steem being locked up as Steem Power, which is used as a sort of fuel to vote on the social media platform built around the token. Much of the new Steem coming into existence was locked up as Steem Power by default, and only a fraction of that new Steem was actually going into circulation.

In addition to these sorts of situations where new supply cannot actually be traded on an exchange, there are also numerous situations where one entity holds a large amount of the coins in existence from the start. If this entity (or a cartel of entities) keep their holdings off exchanges, they can create a situation where there is a meaninglessly high market cap for a coin with not much activity around it.

A study from blockchain analytics company Chainalysis concluded that nearly 4 million bitcoins are likely lost forever, which means the world’s most popular cryptocurrency’s market cap may also be quite misleading.

For example, if Forbes created 1 trillion ForbesCoins out of thin air and then sold one ForbesCoin to someone for $1, that would mean the market cap for ForbesCoin would be $1 trillion. But obviously, that valuation would be worthless information because the market would crash if all of the other ForbesCoins were put on the market.

Long story short: There is a lot of funny business that can go on with cryptocurrency market cap calculations. This is not to say that the market cap metric should be thrown out entirely, just that it needs to be combined with other data points.

Tracking Metcalfe’s Law

Earlier this year, FundStrat co-founder Tom Lee told Business Insider that 94% of bitcoin’s price movements over the past four years can be explained by tracking the number of users on the network. The FundStrat method for tracking user growth combines the number of unique addresses and the USD-denominated transaction volume per address.

This is a model based on Metcalfe’s law, which states that the value of a network is proportional to the square of the number of the users on the network.

It’s unclear if FundStrat adds a requirement for there to be some bitcoin in the counted addresses, but that would make sense to avoid a bit of noise. It costs no money to create a new address, but there is a transaction fee associated with transferring bitcoin to that new address.

It should be noted that this data point may be easily gamed on networks with low transaction fees, even if addresses with no balances are thrown out.

Another possible issue with this method is that new addresses are not necessarily created when users are buying bitcoin and other cryptocurrencies on exchanges (the exchanges hold the funds in their own addresses); however, user growth statistics are sometimes shared by exchanges in the space.

Another metric people have used to value these networks in the past is the number of transactions happening on the network per day. While the bitcoin price effectively grew along with the number of transactions per day in its early days, that trend was broken this year as the price exploded with the number of on-chain transactions per day remaining rather stagnant.

FundStrat’s use of USD-denominated transaction volume rather than the bulk number of transactions is likely a move in the right direction.

More Metrics to Watch

In terms of other data points to watch, it’s best to stick to metrics that are not easily gamed. For now, this could mean some combination of trading volume on exchanges (ignoring exchanges with no fees), the total USD-denominated transaction volume, and the median transaction fee paid to miners.

The easiest way to see there’s something fishy going on with a particular coin’s market cap is by looking at the trading volume on exchanges. A lack of liquidity on exchanges means a whale could come in with a large amount of coin and crash the market at a moment’s notice.

It’s also best to look at monthly volumes rather than daily volumes to avoid spikes caused by the hysteria around a boom or bust in a particular coin on a single day.

With USD-denominated transaction volume, one can see how much activity is actually taking place on the cryptocurrency network’s base layer. By combining this data point with the median transaction fee paid to miners, cryptocurrency networks would be unable to pat their stats by sending meaningless transactions back and forth with large sums of money.

The amount of money collected by miners for transaction fees is another interesting metric to track. This may be the most illuminating data point to watch in terms of learning about the usefulness or desirability of a specific cryptocurrency network. This is effectively the total amount of money that people are willing to pay to use the network on a daily basis.

One thing to keep in mind here is that some of these alternative mechanisms for measuring the value of cryptocurrency networks become worthless on systems with strong privacy guarantees. For example, it is impossible to know how much money is being sent around the Monero and Zcash networks.

I first used Bitcoin in 2011 and have covered the topic as a writer since early 2014. Subscribe to my daily newsletter, YouTube show, and podcast. Follow me on Twitter (@kyletorpey).

Source: forbes.com – Comparing Bitcoin and Other Cryptocurrencies by ‚Market Cap‘ Can Be Very Misleading

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EU Amends AML Laws for Cryptotrading as US Ponders: Expert Blog  | Cointelegraph

Blame Mexican drug dealers when you have to report your crypto trades to regulators.

EU Amends AML Laws for Cryptotrading as US Ponders: Expert Blog

Expert Blog is Cointelegraph’s new series of articles by crypto industry leaders. It covers everything from Blockchain technology and cryptocurrencies to ICO regulation and investment analysis. If you want to become our guest author and get published on Cointelegraph, please send us an email at .

Larry Fink, CEO of the world’s largest asset management company, BlackRock, told a panel at the Institute of International Finance:

„Bitcoin just shows you how much demand for money laundering there is in the world. It’s an index of money laundering.“

Fink’s sentiment about virtual currencies reflected that of an IRS Criminal Investigation division official who told reporters in 2013 – after concluding a multi-jurisdictional investigation and shuttering a $6 billion virtual currency exchange for money laundering:

“If Al Capone were alive today, this is how he would be hiding his money.”

Drugs and money laundering

Recently, the U.S. Drug Enforcement Administration (DEA) published a report that provides an overview of the US efforts to police the global illicit drug trade. The report claims that virtual currencies – Bitcoin, Zcash, Monero, and Ethereum – are increasingly being used in the digital underground to facilitate trade-based money laundering schemes for transnational criminal organizations (TCO).

Over the past 10 years, the drug landscape in the US has vastly changed, with the opioid threat reaching epidemic levels in a significant portion of the country. Drug poisoning is a the leading cause of deaths in the US, with approximately 170 people dying from it every day. The opioid epidemic was declared a national emergency by President Trump last August, when Bitcoin was trading at $4,000.

Mexican TCOs and El Chapo

According to DEA’s report, the Mexican TCOs are the greatest criminal drug threat to the US. In the beginning of this year, when Bitcoin was trading at $1,000, the Sinaloa Cartel kingpin Joaquin Archivaldo Guzman Loera (El Chapo) was extradited by Mexico to the US. The extradition followed Mexico’s recapturing of the fugitive drug lord following his brazen escape from a maximum-security Mexican prison via an elaborate mile-long tunnel that connected to his prison cell.

In the US, El Chapo is facing a long list of criminal charges, including drug trafficking and money laundering, for running one of the most powerful and sophisticated transnational drug trafficking organizations in this world.

DEA’s report ties the extreme success of the Mexican TCOs to multiple factors, such as:

  1. By controlling lucrative southwestern drug smuggling corridors, Mexican TCOs export and transport significant quantities of illegal drugs into the US. El Chapo, in an interview with Rolling Stone magazine, boasted that he could “supply more heroin, methamphetamine, cocaine and marijuana than anybody else in the world.” He proudly took credit for overseeing up to half of the illegal drugs coming into the US from Mexico.
  2. To accomplish this, El Chapo said he had “a fleet of submarines, airplanes, trucks and boats.“ Last year, Mexican law enforcement officials confiscated the Sinaloa Cartel’s 599 aircrafts—a fleet larger than Aero Mexico’s. Some of these airplanes were outfitted with the latest intelligence, surveillance and reconnaissance (ISR) technologies to go undetected by the US border patrol.
  3. After selling the illegal drugs in the US – which brought in $64 billion each year – the Mexican TCOs needed a way to get the drug money back to Mexico. It became increasingly difficult for Mexican TCOs to deposit their illicit cash proceeds directly into US banks and other financial institutions once the worlds largest banks – HSBC, Wachovia and Citigroup – were hit with billions of dollars in penalties for laundering Mexican cartel money. Mexican TCOs were forced to resort to more complex multi-jurisdictional trade-based money laundering (TBML) schemes that included using cryptocurrencies.

Money laundering using cryptocurrencies

The DEA report pointed out that China has become an important hub for money laundering schemes. TCOs purchase large shipments of “made in China” goods using Bitcoin. These “made in China” goods are then shipped to businessmen in Mexico and South America who reimburse the TCOs in local currency. Bitcoin payments are widely popular in China because it can be used to anonymously transfer value overseas, circumventing China’s capital controls.

US proposes cryptocurrencies amendment to AML laws

On November 28, 2017, when Bitcoin was trading at $9,880, the US Committee on the Judiciary held a hearing on Senate bill S. 1241, titled ‘‘Combating Money Laundering, Terrorist Financing and Counterfeiting Act of 2017.” This bill amends the current US anti-money laundering laws (AML) by making virtual currencies more of a target for regulatory oversight. Prepaid access devices, digital wallets and other digital currency exchangers as being subjected to reporting requirements if they contain the virtual currency equivalent of $10,000 or higher.

According to Judiciary Committee Chairman Sen. Chuck Grassley, S. 1241 is designed to help modernize US AML laws. Grassley explained:

“[S. 1241 will give] law enforcement more tools to prosecute and close legal loopholes. It will clarify rules on evidence for prosecutors and judges, which in turn will help increase convictions. It will make it easier to go after drug kingpins, drug cartels and terrorist organizations by being able to seize virtual currencies more easily.”

EU amends AML transparency laws for cryptotrading

European governments are pushing for global Bitcoin regulation at the G20 level, coordinated by the Organization for Economic Co-operation and Development (OECD). Amid mounting alarm that virtual currencies are being used by multinational money-launderers, drug traffickers and terrorists, the German Finance Ministry explained:

“It makes sense to discuss the speculative risks of virtual currencies and their impact on the financial system at international level.”

Several EU countries will create interconnected registries this year, to record details of the beneficial ownership of inter alia companies and trusts under the EU Fourth Anti- Money Laundering Directive (4AMLD). These central registries of beneficial owners will be made available to local tax authorities and will be shared between tax authorities within the EU (OECD-BEPS Action 12).

On December 20, 2017, when Bitcoin was trading at $17,000, the European Parliament and its executive arm, the European Council, agreed to amend the 4AMLD. This amendment will make virtual currency exchange platforms and wallets subject to the beneficial ownership-reporting requirements (4AMLD Virtual Currency Amendment).

These new regulations will require an increase in transparency by trusts and trading companies, which will be pressured to reveal the holders of virtual currency in order to thwart potential money laundering, tax evasion and terror funding. Primary among these regulations is a requirement to provide beneficial ownership information to authorities and “any persons that can demonstrate a legitimate interest” to access data on the beneficial owners of trusts.

The 4AMLD Virtual Currency Amendment must be formally adopted by EU Member States and turned into national laws within 18 months.

Source: EU Amends AML Laws for Cryptotrading as US Ponders: Ex… | News | Cointelegraph

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With cryptocurrency, buy the substance, sell the hype

The prevailing wisdom for cryptocurrency founders is that you win through hype: talk like an infomercial, parade clownish speakers around conferences, and attack critics relentlessly for “spreading FUD.” That approach works; many aggressive entrants have muscled their way to the top of the charts with these tactics (you know who you are).

But there’s another approach that’s less talked about and just as widely employed, one that cryptocurrency founders and investors need to pay attention to: anti-hype.

Ethereum recently fell from second place to third place in market cap. That was big news, but outlets are covering it wrong. The story isn’t that Ripple beat Ethereum, it’s that Ethereum is playing the anti-hype game. It would be trivial for Ethereum to flex its muscle and rally past Ripple, perhaps even past Bitcoin itself. They power almost every cryptocurrency in the world and their founder, Vitalik Buterin, is the closest thing to a blockchain figurehead. But instead of talking up Ethereum on TV or making blustery statements about how Ethereum will disrupt this or that, Buterin calls token sales overvalued, lambasts bad actors, and makes statements like these:

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Binance Adds 250,000 New Users a Day

A new exchange has suddenly taken the crypto-space by storm, reaching 3 million users in mere six months since it launched on July 14th 2017 and growing so fast it temporarily does not accept new users at all.

“Servicing existing members is higher priority at this point,” Changpeng Zhao, Binance’s founder, says before further adding:

“Full team working around the clock. Both tech and support. Just too much demand. Added 250,000 new users in the last 24 hours. Just crazy!”

The Hong Kong based exchange held an ICO raising around 30,000 eth, currently worth $30 million, for 100 million BNB ECR20 tokens.

The raised funds are now dwarfed by BNB’s total market cap of some $1.2 billion with Binance’s founders holding half of it, but why did this exchange suddenly rise to top volumes of $10 billion in the past 24 hours, twice that of Bithumb?

The answer might be a number of reasons. First, it is the only exchange to offer Eth pairs, something many have asked for, especially with ever increasing bitcoin fees.

As such, instead of having no option but to buy, say, TRX with BTC, or a number of other coins/tokens, you can now choose whether to buy them with eth or with btc.

That in itself might have led to strong support by the eth community for the exchange and they indeed were the first to mention it in every two sentences.

Secondly, the ICO itself may have created a base of supporters who were monetarily incentivized to recommend the exchange.

With the third reason perhaps being that the team seems decent. Changpeng Zhao is no newcomer to this space. He was the third employee at blockchain.info and a co-founder as well as CTO at OKCoin.

He thus, presumably, knows a thing or two about exchanges. Binance boasts 1.4 million transactions a second, multilingual support, including in Chinese and Spanish, as well as multi-coin support.

It is probably the latter that has given rise to this exchange, proving once again that satisfying market demand can be very rewarding indeed.

Kraken used to be a lingering exchange of no one’s care until they added ethereum back when few had eth trading. Then, it suddenly became a player, until it could not keep up any longer with users given a catalogue of errors instead of a trading interface.

Binance might have perhaps risen in any event, but the market was demanding eth trading pairs, and with it so being the only exchange to provide them, it might perhaps be the primary reason it has so risen.

And with its rise, a new dimension might enter this space. Bitcoin’s only competitive advantage – trading pairs – might no longer be such an advantage as ethereum now enters to compete even in that area.

Source: trustnodes.com – Binance Adds 250,000 New Users a Day

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Ethereum’s Founder Vitalik’s Address

https://etherscan.io/address/0xab5801a7d398351b8be11c439e05c5b3259aec9b

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Mobilefriendly Realtime Coin-Tracking Site

There are a lot of Tracking Sites but this one has a real nice overview of the important data around your coins.

https://coinlib.io/

Overview

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The Bots Of Bitcoin

On May 6, 2010, the stock market collapsed. The Dow Jones Industrial Average, Nasdaq Composite and S&P 500 all nose-dived, losing around 9% of their value. A trillion dollars was wiped off the value of companies. Within 20 minutes, most of the losses had been regained and within 36 minutes and the event was over. Whatever hit the economy that day had nothing to do with the true state of America’s finances.

An investigation into the Flash Crash focused on the algorithms used by high-frequency traders, companies that rapidly buy and sell stocks as their computer programs spot small price differences across the market. Five years later, police arrested Navinder Singh Sarao, a small trader who was believed to have made more than $40 million during the crash. Trading from his small house in London, he was alleged to have used a computer program to rapidly place sell orders to drive down prices, cancel the orders before the trades went through, then buy the stocks at the lower rate. He wasn’t the only one to make money that day, but his actions were enough to help move the market.

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Ethereum Miners Save the Kitties, Capacity Raised

Metaphorical cheers and laud claps were heard across eth spaces as cats were once again seen roaming freely on the blockchain following a raising of the gas limit by ethereum miners.

Ethereum’s capacity has now risen to 7.6 million computations per block, up from around 6.7 million, and seems to continue rising at the time of writing.

As can be seen above, blocks are still full because thousands of transactions are waiting to move, but the queue has been dropping from 25,000 to 20,000.

Fees are also coming down. They were at 57 cent yesterday, now they stand at 28 cent and might drop further in the coming hours/days.

It is unclear at this stage whether miners have raised the gas limit following some simple protocol improvements, or whether they have opted to give the network some breathing room while we wait for these improvements

Read the full article: http://www.trustnodes.com/2017/12/10/ethereum-miners-save-kitties-capacity-raised

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This was Bitcoin’s big year, but where does it go from here?

Sizing up Bitcoin is a tall order. Even as the price of one bitcoin soared above $10,000, a debate raged over what, exactly, Bitcoin is: A digital store of value, a revolutionary payment platform, or the promise of a completely new, blockchain-based financial system.

The truth is that Bitcoin is all of those things, but whether it’ll succeed as all three — or any of them — remains to be seen.

Bitcoin’s price increased tenfold in 2017 and moved into the media mainstream. But for all the headlines and Bitcoin billionaires, the underlying technology mostly stood still. A significant (and highly controversial) upgrade of its software fell through. And the earlier, minor upgrade still isn’t widely used yet.

The most important problem these upgrades were supposed to fix bitcoin’s biggest problem—that it’s escalating popularity had exposed an underlying issue with Bitcoin’s distributed database. The issue limited just how much Bitcoin could process at any one time, making the network congested and transactions expensive (not to mention power-hungry).

Put simply, while Bitcoin has exploded in value and popularity, the base technology has remained stagnant. And that casts a shadow on its future — right when competition among cryptocurrencies is on fire.

More >>>

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