Market cap is a meaningful concept for items whose market liquidity is close to the total issuance. If all owners of Apple stock (or even gold) were somehow forced to sell all their holdings on market within one year, their total revenue would be fairly close to the market cap. That is not true for cryptocurrencies, not even for bitcoin.
I don't think that's right. Market liquidity doesn't need to be close to issuance, if people are choosing to hold for reasons other than lack of liquidity. Liquidity really only needs to be adequate for each holder or any group of holders operating as a group.
But for those scenarios the relevant quantity is market price, not market cap. Or, rather, (size of largest lot considered)*(mean price for sale or purchase of that lot).
The market cap is (market price)*(total issuance); why would total issuance matter, if only a small fraction of it can be traded at that price?
1. It's a definition. As long as you know the definition you can work with it. You might say that "Market Cap" is not very interesting in certain situations, and I would agree.
2. I could define Liquidity Adjusted Market Cap (a term I just made up) as the price times the amount held by any individual or coordinated group that can be sold for that price. Or perhaps the maximum of that quantity over all prices. So in your earlier example (not quoted above), the friends' holdings would contribute $10 each to LAMC and Z's coins would contribute $10, assuming there is liquidity to sell at most 10 coins for $1 (we don't really know this) and everyone is choosing to hold, for a total of $50. If there is liquidity to sell 200 coins at 0.50, the friends could sell 10 each (total 40) and Z could sell 200, making the LIMC at $0.50 therefore $120. Under the second version of my definition, given these facts the price-unconditional LAMC of the coin would then be $120 (but might be higher if the there is a higher maximum at another price).
Any similarity to Ripple, etc. is intended.