Are You Underestimating The Size Of The Crypto Bubble?


As relevant as the piece below already was when it was published last month, it’s even more relevant now, for obvious reasons.

And indeed, the author referred back to it in a Thursday tweet:

As published November 24 on DK’s Medium (also follow on Twitter)

A definition of market capitalization

Market capitalization is a term at home in equity markets where it is generally referred to as the equity value of a public company. Market capitalization is defined as:

the value of all outstanding shares in a company

That means it is the amount of money that one would need to pay if one were to buy all of a company’s shares (ie. own 100% of the company) at the current market price (not including a control premium). The calculation is very straight forward:

Market Cap = price of 1 share x number of shares in issue

For example, Apple currently trades at around 175 USD / share and has 5.13 billion shares outstanding (or “in issue”). Its market cap is hence close to 900bn USD.

Important differentiation between free float market cap and total market cap

In order to understand my criticism of the typical Cryptoasset market cap, it is important to understand the difference between a company’s “free float” and its “shares outstanding”.

The free float is defined as all shares not held by a major shareholder. Multiplying that number of shares with the price per share is generally considered the liquid part of a company’s market cap, also referred to as “free float market cap”. In the case of Apple, about 91% of its shares are considered “free float”, while 9% are so called “stagnant shares”. The latter includes Berkshire Hathaway’s 2.6% stake and a part of Blackrock’s holdings, as well as insider holdings (ie company employees). In less established firms or those still controlled by a large shareholder, the founder’s shares are typically not part of free float.

Hence, the free float market cap is lower than total market cap, but it is still made up of shares that could theoretically enter the market. There is no law or agreement preventing Berkshire Hathaway or Blackrock to sell their Apple shares at any point. They just have not done so for a while and are therefore not considered part of free float. It is very crucial to understand though that these shares are part of the supply. Berkshire Hathaway is an investor like anyone else (aside from its size) and when they buy a stake in a company (demand) it comes out of the total outstanding shares (supply), not just out of free float.

The issue with Cryptoasset market cap as commonly referred to

It is fair to say that the most quoted number of total Cryptoasset market cap is the one reported by coinmarketcap at this link.

Quite often, that number (currently around 260bn USD) is quoted to put the crypto market in perspective with other markets (like fiat or equity) or even to compare it with previous bubbles. The typical notion of these comparisons is that we are still at the very beginning of the rise of cryptoasset value and that any comparisons to the .com bubble at this stage are outrageous.

However, in these “total market capitalization” statistics, coinmarketcap actually only shows the “circulating supply” of all the cryptoassets, similar to the “free float” of a stock referred to above (there are other sites like onchainfx that show total supply but do not have all assets listed). In some cases this might make sense (for bitcoin, the total supply is not yet mined and won’t be for a long time so it is truly not accessible), but for almost all other cryptoassets this view is simply misleading. For ICOs for example, the standard view disregards the (often large) allocations of token made to founders or other early investors. This can be as much as 2/3 of the total supply and given lock-ups are usually non-existent or very short, all of that supply is part of the market and can and will be sold if there ever were (god forbid) an issue with the security nature of these token (if you do not believe that most token are securities, maybe check this SEC statement out.

Therefore it is important to look at the actual “Total Market Cap” of crypto from time to time to really gauge how large the market has become. You can do this by clicking on the separate coins or tokens button on coinmarketcap and selecting “Market Cap by TOTAL supply” (see below)

Given coinmarketcap presumably has a vested interest (like everyone in the space) for the rally to continue you will actually need to add the numbers for coins and tokens up individually and there is no easy way to see the overall total.

That total currently stands at 560+ bn USD, which is more than double the amount quoted by almost everyone. So next time you compare your favorite ICO to any other start up, think twice about how large it actually already is. I am not even going to go into the fact here that ERC-20 token in most cases have zero actual utility (note I am not talking about mineable utility token) and offer zero rights to the token holders. Plus, any rights they now offer to token holders can be changed at will by the founders.

Even if you disagree with the 560bn USD figure based on the total future supply of mineable coins and tokens, the very least you should consider is the full supply of tokens and the circulating supply of coins, which currently yields about 385bn USD.

Comparison of the Cryptoasset market size to the .com bubble in 2000

Just as “fun”exercise given I frequently read how small the Crypto market is in comparison to the .com bubble, let’s look if that is actually true.

  • The .com bubble size

The .com bubble in 2000 was largely a bubble in any stock that was somehow related to the internet. The best proxy for the overall bubble size is probably the amount of undue speculation in the Nasdaq Composite (a broad measure of all tech stocks in the US) at the time. Clearly it was not only the Nasdaq and it was a global phenomenon, but given not every stock in this index was “bubbly”, as a general estimation this should suffice.

To measure this, I will use the level that stock markets traded at (roughly) for the next decade or so after the bubble burst as the “true” value of Nasdaq stocks and compare the difference in market cap between the peak of the bubble with that number. Broadly speaking, the Nasdaq Composite fell c.50% from its top (though the trough was lower).

This translates to a bubble worth approximately 4 trillion US Dollars.

  • The Crytpoasset market size vs the .com bubble

Now as we established above, the “true” market size of crypto assets is somewhere between 385bn USD and 560bn USD. Let’s call it an even 400bn USD.

At first glance that number is indeed so much smaller than the .com bubble that it is clear crypto cannot possibly be a bubble. However, there is one important distinction to make:

About 90% of the assets in the .com bubble were institutional (ie. pension funds, professional money managers, etc). About 90% of the current crypto investors are private individuals. That puts things in perspective a bit as this would mean that

.com bubble size (only private individuals) = 400 bn USD

Crypto market size (only private individuals) = 360bn USD

You can see that the figures are getting quite close. Don‘t forget also that equity gives you an ownership in the company with an actual seat at the table (for example if the firm gets bought). None of that happens for token holders.

Even if there is early involvement from institutions such as VCs and Coinbase certainly is an institution by now, traditional institutional investors have not yet entered the crypto markets simply because the regulatory framework is too uncertain. This relates to crypto currencies as well as token, but mostly to the latter of course.

Given those large investors will not enter crypto before the regulations are clear and at least I believe enforcing the regulations (even existing ones) will actually burst that (token) crypto bubble, they won’t enter before this round of the cryptoasset bubble actually bursts.


Looking at what we discovered above, we can at least say:

  • Crypto commentators should certainly start looking at total market cap, at the very least for the token world, if not for all crypto assets
  • The crypto market, while smaller than the .com bubble, adjusting for its nature is actually not as far removed from the .com bubble as crypto enthusiasts would like.
  • A fair point to be made is that you cannot simply take the entire market size in crypto and compare it to just the “bubble part” in equities, as crypto is certainly worth something. So we probably are not there quite yet.
  • While the introduction of Bitcoin futures by groups like the CME will, in my view, likely add a significant additional leg up to bitcoin prices and possibly drive the bubble much, much higher, we are starting to enter territory that might just warrant some caution regarding the future value of crypto assets.

Finally, let me just re-iterate what I have said before: I believe in the blockchain and even in bitcoin and ethereum as big positive forces of change. I also think that ICO 2.0 (after the bubble bursts; with regulation and potentially equity-like rights) will change stock markets forever or even replace the current ones. But that does not mean we aren’t currently entering bubble territory.

As always, a short but important disclaimer: none of what I write here is to be construed as advice to buy or sell any kind of asset. It is merely my personal and not my professional opinion. Any asset can go to zero.

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