Is Crypto's Market Value Real?

according to some strategists watching the sell off. And it's a really interesting gauge because when you put it alongside the Bloomberg Gaxy Crypto Index, you can see that kind of symmetry in the way they've moved. Where do we go from here? These losses have affected the entire CRYPTO ECOSYSTEM, from hedge funds to lenders to countless individual crypto investors. By most calculations, two trillion dollars worth of value, that's trillion with it he has been wiped off of this market.

It's estimated that before the winter, the total market value of crypto assets worldwide stood around three trillion dollars. That's a sizeable chunk. But how is this figure market value calculated and how representative, if at all, is it, of Crypto's actual economic value? On today's show I'll talk to Bloomberg reporter of Aldana Harrick. If you were going by the market cap figure, it was three chillion back in

the fall of about this increasingly disputed metric. Lanna, you've been writing, along with all the other markets that you cover, a little bit about crypto and specifically around the ways in which people try to assess CRYPTO's value. Yeah, this this is an interesting rabbit hole that we went very deep into thanks to one of my editors at Bloomberg

Business Week who had been thinking. He loves to think about these big, Grand Meta ideas, and he had been wondering about cryptocurrency market cap because it's something that we quote so very frequently. So if you remember back last year, when crypto prices were at, hovering around their all time highs, what a lot of people were saying at the time

is that the crypto market value was around three chillion dollars. However, we wanted to know if that actually was a very good representation for, you know, what the crypto market is actually worth. And if you think about what market cap is, market cap is just the number of coins that are

out there, multiple by the last price. And but there's a lot of coins and there's a lot of very fraudulent projects out there and lots of coins that maybe have gone so called dormant, where they haven't moved or haven't been used in five or more years sometimes. And so do you want to be including that in your calculation or not? There's just there were a lot of little factors at play and so we really wanted to see, okay, if is it three chillion, and if it's not three chillion,

what might it be? So what is it? Well, the first thing I did was I wanted to get a sense of how many people actually use cryptocurrencies. I looked at the US, because it's very, very difficult to get global data for something like this, but they were actually two very useful surveys out. One was from the Fed that said something like twelve of US adults use or interact or trade cryptocurrencies and another bipus at six percent, and so that's something like fifty three million people, which

really isn't insignificant. And so that was the very first step I took, just in trying to figure out, okay, how many people actually were interacting or knowing about Crypto, especially in the US, especially at the highest last year, and from there, where did the rabbit hole take you? Then I talked to a crypto skeptic and I knew

he was a crypto skeptic. It was David Gerard he he tweets a lot about Crypto, he has his own blog and he writes a lot about crypto and I just wanted to pose to him the question is market cap actually a good way of measuring crypto market value?

And immediately he said No. He used a curse word which we won't repeat, but he said it's basically just all made up numbers and he cited some of the things we were just talking about, including that there's just a lot of projects out there are coins that are floating around out there that you might not want to

be including in your calculation. What did he suggested? Stud he actually suggested that I look at flows into and out of exchanges, which is very difficult to do because the exchanges have to share information with the changes love to share information with journalists. Yeah, they love it no. So. So basically, he after he told me that, I call a bunch of other researchers, some actually at the Cleveland Fed, and one of them was like no, this will be impossible.

So it was not. It was not a good start at first, just finding out that okay, crypto market CAPP maybe is not a good way to be measuring the market, and then also to just sort of hit this dead end. But I continue talking to people. So, before we go into the ways in which you avoided the Dead End, are there folks out there you know? Because like, skeptics

going to skeptic and booster is going to boost. So who are the folks in the middle who are like, well, here are other ways, you know, not just the data from exchanges. What were some of the other ways that folks might have suggested made sense in this assessment that you were trying to do? So this is why I wanted to talk specifically with crypto researchers or even there's crypto economists. So I wanted to talk to companies that I knew sift through data. Our track data really well.

I talked to somebody at Genesis and she had told me to look at something called free float, which is the number of coins in circulation, but you actually subtract out like foundations and nonprofit groups, and that sort of gives you you know, she said market cap actually isn't such a bad way of looking at things because it

helps you account for speculation and speculative froth. But that reading, this free float reading, gave us a reading of seven and eighties seven billion, so very different from three trillion. And I mean, of course, at the time that you started doing this. So when you know the story published the markets itself by that market cap value declined a lot because the prices were falling. It's all so evident that crypto has been hit very hard since its peak

in November. It has lost forty of its value, wiping out more than five hundred seventy billion dollars. Overall. The crypto market has lost nearly two trillion dollars in market value since last November. So were you comparing the sort of closer to one trillion value to that, you know, just under eight hundred billion, like what were the what were the apples and apples comparisons? The market did decline quite a bit from those highs that we reached back

in November. So if you were going by the market cap figure, it was three trillion back in the fall of much closer to one trillion now. So we were really trying to compare to numbers that you would have seen at the peak. That number, that free float number, was actually compared to that three trillion. So it was like this was the free float at the time when

Bitcoin was hitting. Yeah, and for the most part, because I ended up talking to a bunch of other people who have been Gav me other readings to look at, they also were giving me numbers of their specific readings for the peak back in and maybe what those numbers

look like now. And actually some of these readings, the free float and some some of these other ones that I'm sure we'll go into next, they all were hovering around eight hundred billion or so, and so the readings themselves, the free float or realized value, is another one that I looked at. They don't fall as dramatically as prices or the market cap figure because they're already discounting the

froth or the speculation. Interesting. So just to recap what you're saying, there's this kind of big headline number that a lot of folks including US here. A bluemerket paid attention to, which is, you know, the bitcoin's peak, at Crypto's peak. You're looking at a three trillion dollar market. What you're saying is that various other metrics are somewhere closer to an eight hundred billion ish number in that same period when everything was, you know, maximum froth, as

it were. What explains the difference between those metrics and that three trillion? Is it mostly that speculative activity, or are there other factors involved? I think for the most part we were just trying to account for the speculative activity or the froth or the number of loans or the leverage that was out in the system. So they realized value figure. That's another one we looked at. That one actually came up the most out of all the people I spoke with. It just kept coming back again

and again. Vildana, what is the realized value? Okay, so realized value it's the prices the coins actually fetch in their most recent transaction versus market value, which is the sum of the value of stuff that's out there, and so I suppose it's just a better way to be thinking about. Okay, what price a coin might fetch, so to say. So it's the last bid exactly effectively, exactly

for realized value. I spoke with somebody at glass node and glass node is pretty well known in the Crypto community because they track so much data on this ratio that they have, is called M v R V. It's market value versus realized value. That ratio in November of at the peak of crypto prices, hit three point two, which means that the market value was three times the realized value exactly. So you take the three trillion, you're divided by three point two and you get a reading

around eight hundred seventy five. Obviously it's gonna these numbers are going to to vary, but you get a reading around eight hundred seventy eight hundred eighty billion, and that number also just doesn't change as much as the market cap figure would, where you're including all the price that

clients for their different coins. I want to make a Qui note when we when we talk about market cap, because I have had some o g markets editors and also, you know, people on the Internet, points out that capitalization is a concept that historically really works best when you're talking about companies with, you know, shares and like floats and is a little bit less robust when analogized to something like token prices. Do you think it's like a

big deal? I mean when folks get you know, we're in an industry in which there's a lot of jargon, there's a lot of nomenclature, there's a lot of obsession about this is the one true metric. Is there really a one true metric or one true way of describing everything that's happening on do folks need to just get comfortable with nuance? I think we were trying to break the idea that there is this one true metric, because the market cap figure really is something that you just

kept seeing over and over. I remember making news when the overall crypto market cap reached to trilling. Well, first one trillion and to trill and then neared three trillion at the end of last year, and so I think we really wanted to just dispel the notion that you should just be using this one measure when really there's a couple of as we point out in the story, different ways to try to show the true the so

called true value of Crypto. We'll be right back with more from Villa Donna about the methodology for calculating crypto market value, even if crypto does have a ton of potential. You know, what are those folks, the most optimistic among them, like, what are they expecting it to get to? That, I think, depends largely on how the market is moving. So last year one, and also in two, one, prices for skyrocketing. You had a lot of price targets for big one

in particular, that we're genormous. I think that's the best or or higher. I think there were some that were

two hundred fifty thou so. So when when prices are rising and you have people just really excited and they're in this mindset of okay, things are just going to continue, like look at what we've done over the last two years alone, it's going to continue going this way, I think that's when you have people obviously most bullish and they're expecting the market to just grow and grow and grow. It's very different this year. Prices aren't doing as well,

so people have been sort of more restrained. More restrained, you don't really hear so many price targets, but or you don't hear about as you don't have as many people coming out with notes or research saying okay, this is a good price target for a bitcoin to reach, but it's it's it's hard. I think a lot of people make the comparison to the gold market, where gold has been around for I don't even know how long, forever maybe, and that market, its Cryptos, is sometimes thought

of as digital, digital gold. Yes, exactly. So you're having these comparisons between the two where you have people saying, okay, it might overtake that market at some point, but really it's I think it just depends on how the market ebbs in Waynes, which is to your earlier point, kind of the challenge with a metric like market value, right, and that it so much sentiment is wrapped up in

what that number is and what it means to people. Uh, you know, there's a phrase that various folks, including sometimes reports is, like to use about like well, what's an objective measure, as if there is some source of emagic number that is removed from any kind of prejudice or

bias Um that exists. But it does sound to me like what you're saying is there is fairly broad spread consensus, at least among certain types of academics, researches, etcetera, that this idea of realized value is a helpful if if folks wanted to get really attached to an Tkato, that's the one they would recommend. Yeah, it really did keep

coming up again and again. I talked to a researcher at UBS, I talked to glass node, I talked to chain analysis, which is sort of like forensic crypto company, and all of these companies they're tracking data, they're looking at all these different charts. So the people I spoke with, they all kept bringing up realized value. You do hear it a lot in the crypto space. You do hear

about this measure. It's just it's not something that's as mainstream as mark, as crypto market cap, but I do think that it's a solid way to be looking at things. I mean there's a literal website called coin market cap dot COM, yeah, which is quote it quite a bit from it and that's, you know, that's often the place that people anchor around. So you know, if I, if I fire up a web browser right now and I go to there, it's it's like very it's it's the name.

It also says, Hey, here's like today's market Cap, twenty four volume, today's cryptocurrency prices by market cap. What would

take for realized value? Dot Com, should we started? Well, I think the if you're into crypto and your crypto investor and you do have this belief that prices will recover from from what's been going on this year and you know for alternative they'll keep going higher and they'll replace the dollar or whatever, or the goal, the gold market or whatever else, then I think the idea of being able to say three trillion is just much more allerting than saying the realized value is billion. It's just

it's obviously a much bigger figure. It grabs people's attention. So maybe realized value won't become a commonplace, mainstream thing, only because I think people want to use the bigger number, the one that includes all the froth, the one with the TA, the one with the T. Yeah, even if it's not yet quadrillion. Yeah, it may never be. We'll see, but I can easily spend it. On that note, thank you for Don always a pleasure to have you. Thanks

for having me. You can find more of Bill Donna's reporting on the Bloomberg terminal on Bloomberg Dot Com or follow her on twitter. She's at Vil Donna Harrick. That is v I L D A N E H A J R. I C on the next episode of Bloomberg Crypto, the merge. It's finally over, it's done, it happened, so now we're gonna ask what's next, and you'll hear words like splurge, purge, purge, all things that rhyme with emerge and that will soon follow. This is Bloomberg Crypto, a

daily podcast from Bloomberg and I heart radio. For more shows from I heart radio, visit the I heart radio APP, apple podcasts or wherever you get your podcasts. Send US your comments, questions or suggestions for the show to Crypto at Bloomberg Dot net or find us on twitter. We're at CRYPTO. The supervising producer of Bloomberg Crypto is Vicky Verklina. Our senior producer is Janet Babin. Our producers are Mohammed Farup and Sharon Barriro. Our associate producers are ty Butler

and Moses on them. Desta wonder at is our engineer. Original Music by Leo Sidran. I'm Stacy Marie Schmall we'll be back tomorrow.