Dear Fellow Crypto Enthusiast,
“Could this be the “crypto-pocalypse?”
Some would argue “yes”!
Understandably, investors like yourself may be asking the same thing.
The total market capitalization of cryptocurrencies has shrank from a January high of $830B to its current position of $372B, which is a 55% decrease in just a few short weeks.
And Bitcoin’s price has dropped from $17,000 to $8,000, taking its market cap down from $296B to $133B. (Bitcoin currently represents 35% of the total crypto market cap, also referred to as “BTC Dominance.”)
So where did all the money go?
Did it actually leave the market?
Or did it just evaporate into the “ether,” in the same way it was created??
To understand the current state of the crypto market, we first need to understand what this number, represented as “total market cap”, actually is.
Most people think that this number of $830B is actually the total number of dollars invested in crypto…
While that would be great, it’s far from the actual number. The market cap is merely a number derived from multiplying the current price of each crypto against its circulating supply.
So let’s take a look at Bitcoin for an example…
If there is a circulating supply of 16,840,850 BTC currently in existence, and the price of 1 BTC is $8,000, then the market cap of Bitcoin would be a little under $135B.
To get the total market cap of all cryptocurrencies, you would do this for each coin and token in existence, and then add all of the totals up to come to the current market capitalization of the cryptocurrency market… which is $372B as of this moment.
So, when someone says that “$100B just left the market”… It doesn’t mean that a big bunch of investors just sold all of their crypto holdings into fiat currency to the sum of $100B…. What they really are saying is that the total value of assets in the crypto market have lost $100B in value.
The actual term for money leaving the market would be “net outflow,” with “net inflow” representing the amount of money entering the market. These are very important terms to understand when talking about the total market cap of all cryptocurrencies…
Because if you were to look at Bitcoin’s market cap of $296B and then see it drop to $133B, the story looks a lot different if you understand the concepts of net inflow and outflow.
What is an example of net inflow?
When someone goes into their exchange account on Coinbase, GDAX, BitFlyer, BitStamp, or Kraken, and buys BTC with their USD, EUR, or KRW, that transaction would be considered a “net inflow”… It is new capital entering the market.
The same would be reversed when someone is “cashing out” their BTC for fiat currency, which would be considered a “net outflow.”
But if we were to look at the total circulating supply of BTC today, which is at 16,840,850 BTC… Were all of those coins purchased at the same price of $8,000?
Was each coin bought with an inflow of fiat currency?
The answer to both questions, if you didn’t figure it out, is NO.
So, the market cap of Bitcoin in this circumstance is not a true representation of the amount of dollars invested in it.
Some people bought in at $1, some at $10, others at $100, and most of you got in above $1,000…. And some didn’t even use fiat to directly purchase BTC, if you think about mining and the creation of new bitcoins.
Are you still following?
The point being, the market cap of bitcoin and all cryptocurrencies is very deceiving… It is not a true representation of the current inflow and outflow of capital into the market, but merely a snapshot of the price action of a particular crypto, at a particular time.
Some say that the total amount of actual fiat currency invested into the crypto market is just a small percentage of the total market cap… Anywhere from $10-20B, but it’s really hard to pinpoint an exact number, without auditing every exchange in the world (which will not happen anytime soon, if ever).
Now that you understand how the total market cap is derived, your panic should subside a bit (we hope!). And you can calmly, take a look at the market in an intelligent manner. What we believe to be occurring is a range of FUD surrounding the market…
Nothing but some “good ole” Fear, Uncertainty, and Doubt clouding the minds of confused and weak investors.
So while some of these investors are selling into fiat (net outflow), the strong handed investors are still holding, and are continuing the buy the dips of the coins that they believe in for the long-term…
Because at the end of the day, this is a marathon, not a sprint. If you want to make it to the finish line, you have to think that way, or else you’ll collapse from exhaustion before the real race even gets started.
On red days and weeks like these, it’s better to just delete your Blockfolio app (or hide it deep down in a folder where you won’t feel tempted to look at it), stay off social media, and focus on your passions outside of crypto.
Go spend some time with your loved ones the weekend and put down the computer or smart phone.
We have full confidence that the markets will recover in the coming weeks and months, and you should too, if you believe in the future of money, like we do.
Yours in Success,
P.S. There’s no doubt crypto is worth understanding and diving into, but don’t let the markets eat you for lunch. Study… learn… prepare… THEN attack. And profit.
My friend Brad built and managed a hedge fund that did 106% returns in 2013 (I mean, the dude made a million bucks profit for himself and his partners in a single month), and is now a “seasoned” crypto investor having seen 150x returns on some of his holdings.
Brad and his partners are holding a masterclass titled (get this): The Cryptocurrency Masterclass.
Anyway, he’s gonna be teaching us the basics, things like wtf Bitcoin and blockchain even are, how people are making money, how to keep your coins safe, and a bunch of other stuff. I think they are even giving away some cryptocurrency on the masterclass itself.
You are welcome.