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RE: How ICOs inflate the cryptocurrency market cap
Right, the prices do not double, but the total amount that's accounted for does due to the newly-minted ICO tokens. We know the magiccoins aren't worthless because people just traded valuable Ether for them.
Correct, but what I am saying is that if we have a million ether worth a million dollars to every one magic coin at the release of the ICO, and we take that one ether and trade it for the magic coin the magic coin is now worth 1 dollar, but the total value of ether takes a hit and the one million ether are worth $999,999. or 99.9 cents each. So although it appears to have created two new coins, in reality we have just lowered the price of ether a miniscule amount which is essentially invisible. Once people buy more Ether using USD the price of ether re-normalizes to a dollar and then and only then does the market cap increase.
But why would contributing that Ether to the ICO reduce the market cap of Ether?
Just because the Ether is momentarily out of circulation doesn't mean it's not counted in the market cap. Or am I misunderstanding something about what you're saying?