How is Crypto Market Cap Calculated and Why it Can be…
By Damilola Esebame
AI summary of the source article
Crypto market capitalization is calculated by multiplying token price by circulating supply, but this formula assumes all existing coins are liquid and accessible. Estimates from BitGo show that 2.3 million to 4 million Bitcoin are permanently lost, distorting reported circulating supply figures. In addition, dormant holdings and locked staking or foundation reserves create large discrepancies between tradeable liquidity and headline market caps. The accuracy of these valuations is further undermined by trading volume manipulation, with academic research finding that wash trading may represent over 70% of volume on unregulated exchanges, leading regulators like the Commodity Futures Trading Commission to penalize false volume reporting.
Why it matters
Distortions in circulating supply and wash-traded prices can mislead institutional and retail investors regarding a digital asset's actual liquidity and scale. Regulators are increasingly scrutinizing market data reporting to prevent artificial pricing from undermining market integrity.
Key facts
- BitGo estimates that between 2.3 million and 4 million Bitcoin are permanently lost, representing 11% to 19% of the total hard cap.
- A joint study by Cornell, Newcastle, and Tsinghua universities found wash trading may account for over 70% of reported volume on unregulated exchanges.
- The Commodity Futures Trading Commission fined Coinbase $6.5 million in 2021 for false reporting and wash trading.