<p>Unfortunately, those who are riding the current trend do not have a clue about what they are doing. I guess, they don't even think of hypothetical situations you've given above to legitimise cryptocurrencies, instead, they appear to be enjoying the joyride. If anything, cryptocurrency trading is more like a <a href="http://forums.moneysavingexpert.com/showthread.php?t=2920264" rel="nofollow noreferrer">fantasy share trading</a> with real consequences.</p>

<p>As of now, there are <a href="https://digitalcurrencyindex.io/" rel="nofollow noreferrer">1354 cryptocurrencies</a>. </p>

<p>As you suggest, "investors" may have decided that digital currencies are better "<em>(eg because you could avoid tax / minimise transaction costs)</em>".</p>

CC BY-SA 3.0
2017-12-27T15:29:31.807Z
2017-12-27T16:30:47.033Z
2017-12-27T16:30:47.033Z
london
<p>As there is no practical limit on the number of cryptocurrencies that can be created, and as no one crpytocurrency has a unique advantage over any other, and as no cryptocurrencies are legal tender anywhere, the theoretical market cap of any one cryptocurrency has zero underlying value.</p>

<p>What its actual market cap is, will depend on how many suckers can be lured into purchasing it, and what their combined purchasing power is.</p>

<p>Furthermore, even if all your incorrect assumptions were correct, your conclusion would not be: the total capitalisation of all existing sovereign currencies is finite. If they were all to be replaced by a cryptocurrency, then its capitalisation would be much less than the existing total capitalisation of all sovereign currencies, because economic activity would have taken a huge downturn. That's because the world is not an Optimal Currency Area.</p>

<p>This is not to say that cryptocurrencies will never have any value. But at time of writing, there is no visible legitimate application that gives them value.</p>

CC BY-SA 3.0
2017-12-26T12:00:35.947Z
2017-12-27T11:58:50.623Z
2017-12-27T11:58:50.623Z
410 gone
<p>You can measure capitalization if a "crypto currency" is a security (an investment asset). For currencies, you can measure the <a href="https://en.wikipedia.org/wiki/Money_supply" rel="nofollow noreferrer">money supply</a> - the total amount of currency available.
You are trying to measure the total money supply in a foreign currency. For this you can multiply the total money supply by the exchange rate, as you already suggested in the question.</p>

<p>The main issue with crypto currencies is that they are being bought and traded as securities rather than currency. </p>

<p><em>Definition of security (USA)</em></p>

<blockquote>
  <p>(...)a contract, transaction or scheme whereby a person invests his money in a common enterprise<a href="https://en.wikipedia.org/wiki/Money_supply" rel="nofollow noreferrer">1</a> and is led to expect profits solely from the efforts of the promoter or a third party.</p>
</blockquote>

<p><a href="https://www.cuttingedgecapital.com/what-is-a-security-and-why-does-it-matter/" rel="nofollow noreferrer">Source</a></p>

CC BY-SA 3.0
2017-12-30T10:54:35.080Z
2017-12-30T10:54:35.080Z
JoaoBotelho
<p>Here’s the context. I want to know what the theoretical market capitalisation (say eg $US / Bitcoin times Q the number of coins - it doesn’t have to be Bitcoin) of a crypto currency? Assume that the crypto currency is uniformly better than fiat. I think it tends to infinity. To see this, let’s say everyone decides that a digital currency is better (eg because you could avoid tax / minimise transaction costs), then in an extreme scenario ppl decide that it’s just better to hold digital currency rather than fiat - so demand for fiat currency in that case tends to 0 and exchange rate between fiat / digital currency tends towards infinity because the fiat becomes worthless. So it’s kind of like holding a stock that’s price goes to 0. And that probably explains the considerable growth of digital market capitalisation. Is my reasoning correct? </p>

CC BY-SA 3.0
2017-12-26T03:49:39.637Z
How many businesses accept Bitcoin for payment, vs those that accept US dollars?
Hot Licks
CC BY-SA 3.0
2017-12-26T04:17:02.243Z
Your reasoning is correct but literally every single one of your premises is incorrect, and as a result, your conclusion (that the increase in the price of digital currencies is due to the phenomenon you propose) is also incorrect.
dismalscience
CC BY-SA 3.0
2017-12-26T05:28:53.737Z
Can you please explain why / what premise is incorrect? I think it’s entirely possible that a crypto currency can be uniformly better than fiat - it could only be a matter of time before that happens.
Christian
CC BY-SA 3.0
2017-12-26T07:05:41.600Z
@HotLicks this question probably shouldn’t refer to Bitcoin. I think you should just think about a hypothetical crypto currency that’s uniformly better than fiat. I think that’s possible in the near future to have such a currency thus a reasonable premise
Christian
CC BY-SA 3.0
2017-12-26T09:22:25.510Z
@HotLicks An important variation: How many governments accept cryptocurrency to pay taxes?
Jeff
CC BY-SA 3.0
2017-12-26T13:39:19.720Z
This question is confusing and has too many unstructured arguments. Are you trying to explain the current growth of cryptocurrency? Or are you trying to find a way to measure the existing volume of cryptocurrency in the market, and its value in fiat currency?
JoaoBotelho
CC BY-SA 3.0
2017-12-26T13:40:55.780Z
It clearly says in the very first sentence what I want to know.  To repeat, what is the theoretical market capitalisation of a crypto currency (defined as P times Q)? In your response, you should assume that the crypto currency isn’t necessarily Bitcoin and can do everything fiat can do, but better. So no transaction costs, no intermediaries, immediate transaction processing, possibly tax avoidance.
Christian
CC BY-SA 3.0
2017-12-26T14:15:23.890Z
What is theoretical market cap of an asset — any asset? Is there anything special about crypto-currencies that make the answer to this question different/of interest? What about the theoretical market cap of a (non-crypto) currency (when denominated in another one)?
Theoretical Economist
CC BY-SA 3.0
2017-12-26T14:19:41.273Z
Well valuing a currency must be different to an income generating asset (in that case it’s value is its present value of future income streams). The theoretical market price of other currencies are determined by supply and demand for that currency. So demand and supply should also determine the price of a crypto currency. I think that given that there’s many competing crypto currencies, it’s a matter of time before one crypto currency is uniformly better than fiat and when that happens, the demand for fiat could be greatly reduced.
Christian
CC BY-SA 3.0
2017-12-26T17:29:20.320Z
“Demand for fiat currency tends to 0” nope try again.
Hessian
CC BY-SA 3.0
2017-12-26T17:33:53.457Z
@Christian most of your premises are normative statements, and you beg that others explain why they are incorrect ????
Hessian
<exchange-rates><cryptocurrency><foreign-exchange><bitcoin>
Theoretical market capitalisation of a crypto currency?
Christian
# Theoretical market capitalisation of a crypto currency?

(Asked by: username_0 on 2017-12-26)

Here’s the context. I want to know what the theoretical market capitalisation (say eg $US / Bitcoin times Q the number of coins - it doesn’t have to be Bitcoin) of a crypto currency? Assume that the crypto currency is uniformly better than fiat. I think it tends to infinity. To see this, let’s say everyone decides that a digital currency is better (eg because you could avoid tax / minimise transaction costs), then in an extreme scenario ppl decide that it’s just better to hold digital currency rather than fiat - so demand for fiat currency in that case tends to 0 and exchange rate between fiat / digital currency tends towards infinity because the fiat becomes worthless. So it’s kind of like holding a stock that’s price goes to 0. And that probably explains the considerable growth of digital market capitalisation. Is my reasoning correct?

**Tags:** exchange-rates, cryptocurrency, foreign-exchange, bitcoin
> **Comments:**
> **username_1**: How many businesses accept Bitcoin for payment, vs those that accept US dollars?  
> **username_2**: Your reasoning is correct but literally every single one of your premises is incorrect, and as a result, your conclusion (that the increase in the price of digital currencies is due to the phenomenon you propose) is also incorrect.  
> **username_0**: Can you please explain why / what premise is incorrect? I think it’s entirely possible that a crypto currency can be uniformly better than fiat - it could only be a matter of time before that happens.  
> **username_0**: @HotLicks this question probably shouldn’t refer to Bitcoin. I think you should just think about a hypothetical crypto currency that’s uniformly better than fiat. I think that’s possible in the near future to have such a currency thus a reasonable premise  
> **username_3**: @HotLicks An important variation: How many governments accept cryptocurrency to pay taxes?  
> **username_4**: This question is confusing and has too many unstructured arguments. Are you trying to explain the current growth of cryptocurrency? Or are you trying to find a way to measure the existing volume of cryptocurrency in the market, and its value in fiat currency?  
> **username_0**: It clearly says in the very first sentence what I want to know.  To repeat, what is the theoretical market capitalisation of a crypto currency (defined as P times Q)? In your response, you should assume that the crypto currency isn’t necessarily Bitcoin and can do everything fiat can do, but better. So no transaction costs, no intermediaries, immediate transaction processing, possibly tax avoidance.  
> **username_5**: What is theoretical market cap of an asset — any asset? Is there anything special about crypto-currencies that make the answer to this question different/of interest? What about the theoretical market cap of a (non-crypto) currency (when denominated in another one)?  
> **username_0**: Well valuing a currency must be different to an income generating asset (in that case it’s value is its present value of future income streams). The theoretical market price of other currencies are determined by supply and demand for that currency. So demand and supply should also determine the price of a crypto currency. I think that given that there’s many competing crypto currencies, it’s a matter of time before one crypto currency is uniformly better than fiat and when that happens, the demand for fiat could be greatly reduced.  
> **username_6**: “Demand for fiat currency tends to 0” nope try again.  
> **username_6**: @Christian most of your premises are normative statements, and you beg that others explain why they are incorrect ????  

---

## 3 answers

### Answer by username_7 on 2017-12-27. Score: 2 | Accepted answer

Unfortunately, those who are riding the current trend do not have a clue about what they are doing. I guess, they don't even think of hypothetical situations you've given above to legitimise cryptocurrencies, instead, they appear to be enjoying the joyride. If anything, cryptocurrency trading is more like a [fantasy share trading](http://forums.moneysavingexpert.com/showthread.php?t=2920264) with real consequences.

As of now, there are [1354 cryptocurrencies](https://digitalcurrencyindex.io/).

As you suggest, "investors" may have decided that digital currencies are better "*(eg because you could avoid tax / minimise transaction costs)*".


---

### Answer by username_8 on 2017-12-26. Score: 4

As there is no practical limit on the number of cryptocurrencies that can be created, and as no one crpytocurrency has a unique advantage over any other, and as no cryptocurrencies are legal tender anywhere, the theoretical market cap of any one cryptocurrency has zero underlying value.

What its actual market cap is, will depend on how many suckers can be lured into purchasing it, and what their combined purchasing power is.

Furthermore, even if all your incorrect assumptions were correct, your conclusion would not be: the total capitalisation of all existing sovereign currencies is finite. If they were all to be replaced by a cryptocurrency, then its capitalisation would be much less than the existing total capitalisation of all sovereign currencies, because economic activity would have taken a huge downturn. That's because the world is not an Optimal Currency Area.

This is not to say that cryptocurrencies will never have any value. But at time of writing, there is no visible legitimate application that gives them value.


---

### Answer by username_4 on 2017-12-30. Score: 0

You can measure capitalization if a "crypto currency" is a security (an investment asset). For currencies, you can measure the [money supply](https://en.wikipedia.org/wiki/Money_supply) - the total amount of currency available.
You are trying to measure the total money supply in a foreign currency. For this you can multiply the total money supply by the exchange rate, as you already suggested in the question.

The main issue with crypto currencies is that they are being bought and traded as securities rather than currency.

*Definition of security (USA)*

> (...)a contract, transaction or scheme whereby a person invests his money in a common enterprise[1](https://en.wikipedia.org/wiki/Money_supply) and is led to expect profits solely from the efforts of the promoter or a third party.

[Source](https://www.cuttingedgecapital.com/what-is-a-security-and-why-does-it-matter/)


---

