I agree that the market, as with other crypto, is pricing in some of the illiquid supply &/or supply held by founders into the true valuation & STEEM is effectively being valued much higher than the available supply metric suggests. However if CMC included all founder and illiquid shares as 'available supply', then many other cryptos would argue for similar treatment & create what I would consider heavily distorted valuations.
Does it really make sense that someone buying STEEM, then converting it to VESTS should REDUCE the market cap
It creates a situation where the valuation could be easily distorted/manipulated when shares are removed from easily available supply. They could for example receive an artificially high valuation due to scarcity as you seem to acknowledge...
My view is that tightly controlled supply (as in the case of a pre-mine or ninja-mine) doesn't contribute to the market cap of a coin in the same way that freely coins distributed do.
As for OP_HODLing or VESTing . . . if I were to OP_HODL 1000 bitcoin for 1 year . . I wouldn't think that would affect the market cap of bitcoin. However if a preminer OP_HODLs 1000 coins and then gives them away . . that doesn't really count as distribution as the coins are not freely available to their new owners. The new owners may not even be aware of their good fortune. The key distinction is who makes the OP_HODLing decision.
OP_HODLing 1000 BTC for a year, might not affect the market cap of BTC but OP_HODLing 15323000 BTC for a year surely would... So while a small amount may not be a big issue, in the case of STEEM where >99.5% has at times been removed from active circulation/easily available supply I think it would distort valuations due to scarcity as Bytemaster's pump comment seems to acknowledge.
I think it should still count towards 'total supply' and therefore the overall/true valuation but that it shouldn't count towards 'available supply' as CMC currently ranks. So I think CMC's current approach is largely correct.
While I'm not a fan of Steem, so possibly bias, given that you are the lead dev for Hodl which also uses high inflation/dilution to incentivise the locking up/vesting of supply, I think you may be slightly bias too in what should constitute 'available supply'. Love the squirrel branding though btw. Obviously up to CMC to decide what they think is best. Apologies for clogging up their thread.