Most cryptocurrency enthusiasts and analysts use CoinMarketCap to ascertain the relative rankings of cryptocurrencies. However, the market cap data displayed on CoinMarketCap is simply the current price of a cryptocurrency multiplied by the total circulating supply. This is an inaccurate method of measuring the total value of a cryptocurrency since if even a small fraction of the total circulating supply of a cryptocurrency is sold the price goes down. That means the market cap displayed on CoinMarketCap is far higher than the total amount of money that can be obtained when selling the circulating supply of a cryptocurrency.
CoinMarketBook aims to solve this problem and shed light on the true value of cryptocurrencies. The motto posted on the front page of CoinMarketBook is “Market cap is a lie. Buy support tells the true story. Buy support rating separates investments from gambles.”
CoinMarketBook calculates buy support, which is the total amount of orders within 10 percent of the max bid price for a cryptocurrency, i.e. the spot price. Essentially, buy support shows how much of a cryptocurrency can be dumped for a cryptocurrency’s spot price to decline 10 percent. CoinMarketBook aggregates data from BitMEX, Binance, Bithumb, Bitfinex, OKEx, Huobi, Bittrex, Poloniex, and Kucoin exchanges.
Notably absent are Bitstamp and Coinbase, making CoinMarketBook’s buy support numbers underestimated. That being said, the buy support numbers can be used to measure the relative liquidity of cryptocurrencies.
Bitcoin (BTC) has by far the highest buy support at $200 million as of this writing. This means $200 million worth of Bitcoin would have to be dumped for Bitcoin’s price to decline 10 percent. This means large sell orders in the tens of millions of dollars range can be conducted without losing too much money from the price of Bitcoin crashing due to the sell order. This makes Bitcoin the most ideal cryptocurrency for institutional investors.
Ethereum (ETH) is at number two with $53 million worth of buy support. This makes Ethereum the most highly liquid altcoin, much more so than Ripple (XRP) which only has $14 million worth of buy support. However, Ripple’s third-place showing on CoinMarketCap is a good example of why market cap alone is not a good measure of a cryptocurrency’s true value. Ripple (XRP) may be #3 on CoinMarketCap, but its liquidity is weak. This situation is exacerbated by the fact that Ripple Labs holds 59 billion XRP worth $18.7 billion. The centralized supply of XRP plus the weak buy support makes the Ripple (XRP) market highly susceptible to the monthly XRP auction that Ripple Labs conducts.
EOS has $18 million of buy support, slightly more than Ripple (XRP). This is despite EOS having a market cap of $2.5 billion while Ripple (XRP) has a market cap of $15 billion. This is likely because EOS is a popular platform for the development of dApps.
Litecoin (LTC) is at number four on CoinMarketBook with $14 million of buy support. Litecoin is quite popular and has a strong reputation since it is the top Scrypt coin, but even Litecoin’s buy support is fairly weak. The total market cap of Litecoin is over $2 billion, while a sell order of $14 million would crash its price by 10%.
Tron (TRX), which had been having a strong rally last month now has $6 million of buy support. This shows that despite Tron’s nearly 140 percent gain since bear market lows, it is still highly susceptible to a large sell order.
Bitcoin Cash (BCH), which is called the true Bitcoin by its proponents, has a meager $4 million of buy support. This makes the Bitcoin Cash (BCH) market highly illiquid and is solid proof that Bitcoin Cash (BCH) does not even come close to Bitcoin’s (BTC) use and popularity. Bitcoin SV (BSV), which is likewise called the true Bitcoin by Craig Wright and other of its advocates, has only $1.1 million of buy support. Literally, $1 million being sold over the course of a day could cause a Bitcoin SV (BSV) crash. Despite this, Bitcoin SV (BSV) has a $1.1 billion market cap and is ranked number 10 on CoinMarketCap.
The top privacy coin Monero (XMR) only has $2.6 million of buy support. Monero (XMR) is definitely unique and useful, but it is designed for a niche market of highly stealth users and clearly is not in high demand versus Bitcoin (BTC). Likewise, Dash, which is the top X11 masternode coin and has good for privacy, only has $1.7 million of buy support.
Dogecoin (DOGE) has been a reputable cryptocurrency since the early days, yet it only has $0.61 million of buy support. This makes Dogecoin (DOGE) highly susceptible to dumps. That being said, Dogecoin (DOGE) has a strong community and is not a typical choice among investors, making it likely that it is widely dispersed among holders. This makes it unlikely for large amounts of Dogecoin (DOGE) to be sold at any given time. However, the fact is Dogecoin (DOGE) has practically no liquidity versus Bitcoin (BTC) and is a poor choice for institutional investors.
Beyond these major cryptocurrencies, there are numerous well-known cryptos such as OmiseGo, Waves, Ontology, 0x, Siacoin, Qtum, NEM, Stratis, Basic Attention Token, Augur, Digibyte, Decred, Decentraland, Aeternity, Golem, Lisk, Civic, Loom Network, Factom, Steem, and Polymath with less than $1 million of buy support. Many more cryptocurrencies have less than $100,000 of buy support. These cryptocurrencies are risky for institutional investment since selling large amounts would incur heavy losses due to the lack of liquidity in these markets.
The total crypto market cap at this time on CoinMarketCap is about $121 billion. However, this is simply the total circulating supply of the 2,100 cryptocurrencies on CoinMarketCap multiplied by spot price. The total crypto market cap does not take into account the lack of liquidity for most cryptocurrencies. Therefore, the true value of all the cryptocurrencies combined is much lower.
One important lesson to take away from this data is that Bitcoin is the king of cryptocurrencies and by far the best choice for institutional investors since it has high liquidity. High volume traders must be aware of the buy support data on CoinMarketBook before diversifying into altcoins, in order to avoid being trapped in a situation where they cannot sell their position without taking heavy losses due to lack of liquidity.