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What the Hell Is Happening To Cryptocurrency Valuations? (techcrunch.com)
The investment category of cryptocurrencies hit a new milestone this week, one that would have been unfathomable just a couple of years ago: $100 billion in combined market capitalization. The break above the 12-digit threshold is largely attributable to bitcoin, which is by far the largest digital currency in the still-nascent category, and which has been on a tear lately. From a TechCrunch article: There is one rational explanation that, if true, would totally justify this rapid increase in price across some of the major cryptocurrencies. And that is, maybe these currencies are actually worth these high prices, and maybe even worth many times more than that at which they are currently trading. But the problem is we have no way to figure out their value. Cryptocurrencies aren't public companies with earnings and expenses and EPS. For example, we can look at Apple's financials and determine its book value -- what the company's assets would be worth if hypothetically liquidated today. Of course, stocks trade at a premium to this, because people are enthusiastic that Apple will continue to perform well and this book value will continue to rise. But we can't do this with cryptocurrencies. We could guess -- and compare it to things like the total money or gold supply in the U.S. For example, if you're someone who thinks of cryptocurrencies as a store of value, the total estimated value of all gold in the world is more than $8 trillion dollars... meaning if bitcoin would ever replace or supplant gold, its current value is pennies on the dollar.
New boom with disaster to whoever is left holding the last "coin".
are the only external buyers - the rest is a crypto circle jerk.
https://en.wikipedia.org/wiki/South_Sea_Company
Human greed. When people start selling houses and taking out new mortgages to "invest" in bitcoin, that's when you get the hell out.
Seven puppies were harmed during the making of this post.
Stop ransomware and you kill Bitcoin.
We are witnessing a birth of a new form of human cooperation. It's like it's the Internet and it's 1996. Things are still geeky, but eventually a killer app like social media will make this mainstream. Maybe when there are millions of coins all interchangeable, anyone can set one up and gain liquidity for their business. I was listening to the BoostVC podcast which had Billy Draper talking about how Initial Coin Offering are now competing with venture capitalists for funding companies and they are setting up foundations in Switzerland t manage these things!!
This is how you blow bubbles. The real trick is knowing when to cash out.
“He’s not deformed, he’s just drunk!”
There is one rational explanation that, if true, would totally justify this rapid increase in price across some of the major cryptocurrencies. And that is, maybe these currencies are actually worth these high prices, and maybe even worth many times more than that at which they are currently trading
Or more likely its a speculative bubble and like the stock price of Tesla it has far outpaced the current underlying fundamentals. They are basing this on valuations of derivative instruments relating to (mostly) bitcoin. Like a stock there is no cause and effect link between the market price and the actual value of the underlying asset. All it takes to get an absurd "valuation" is one party purchasing an interest in a fund or company dealing in bitcoin for a large amount of money. If I buy 10% of your company for $1 million dollars I am de-facto saying I think your company is worth $10 million. But the problem with that is that there is a winner's curse effect at work. Just because one person overpays doesn't mean everyone else agrees.
Bitcoin is skyrocketing mainly because it's one of the only safe ways for kleptocrats to move their money out of China. For those that don't know, China has exceptionally strict wealth export laws so the paper billionaires there need a way to move their money out and into other markets.
Take a look at a chart of BTC vs Yuan and you'll see an almost perfect inverse relationship.
Cryptocurrencies are deterministically minted. Valuating them is a simple matter of determining the value of your labor, and their rate of issuance. Arbitrage as it is currently used would cease to exist as coins would be weighed against one another based on their relative rate of issuance, and their inherent metrics (confirm times, number of coins in distribution, number of coins remaining to be mined...etc)
maybe these currencies are actually worth these high prices
Hahahahahaha
I have nothing useful to say. Just had to point out that it's not every day that see such absolute BS.
SJWs are the new boogeyman. -Me
If nothing else, eBay has taught the world one simple fact:
EVERYTHING is worth what two people are willing to pay for it.
Things that can't be sold on eBay are worth even more than that, because now we're into grey/black market territory with all the attendant markups due to risk.
I thought the blockchain was public. I'm not particularly knowledgeable of the process specifics or the computing power necessary for it, but if "valuation vs actual worth" is so important, I'm sure someone could simply set up a shop that tracks the amounts, type, frequency of transactions, among other stats of the currency simply by polling the blockchain and other publicly available records.
And then, with the simple motto of supply and demand, one could estimate the worth at a very trusty rate, maybe even better than what there is today for companies (which trade based on the stock market, investor relation publications, speculation, government influence such as central banks...). I'd say it's a lot better to track the worth of something so simple, so public, so transparent as Bitcoin than it is to track companies that abuse omission, legal loopholes, in and out of their base nations.
Thanks for your details shearing. It's very helpful. I am someone who thinks of currencies as a store of value, the total estimated value of all gold in the world is more than $8 trillion dollars... meaning if bitcoin would ever replace or supplant gold, its current value is pennies on the dollar. Everyone will agree on this issue.
The bitcoin network is choked by high fees due to greedy developers and miners so people have to pay more to get in. What good is a $10,000 bitcoin if you have to pay $100s in fees to use it.
Seriously, get a few Russian hackers using cryptocurrencies for payoffs and everyone thinks a diamond isn't just a compressed chunk of coal.
-- Tigger warning: This post may contain tiggers! --
Financial Expert Peter Shiff made an interesting point in his podcast this week about crypocurrency valuations. As an Austrian Economist he believes the digital currencies will eventually implode and become worthless. The interesting point he made is that while bitcoins may be limited (they will eventually be capped at 21 billion bitcoins) cryptocurrencies ARENT. You can make as many cryptocurrencies as you wish, meaning they can be created in excess and therefore be exposed to inflationary or hyperinflationary effects that could cause a massive crash in the value of all crypto currencies.
That said, i'm still gonna wait for a crash in bitcoin value this year, and then buy some as a purely speculative bet
A bubble.
When Bitcoin first appeared on slashdot I thought it was a neat experiment. I followed up by finding people on IRC and getting some Bitcoin. Over the years slashdot users have maintained a staunch incredulity and mostly hate on Bitcoin here. Well that's fine, but some of us did pretty well out of it no matter what your opinion is.
Lets assume for a moment, that you have two currencies, ByteCoin and FOLLAR (Fiat Dollar).
Lets further assume, that both are at some sort of equilibrium at some point, where ByteCoin and Follar are trade one for one.
The Follar, is controlled by a private bank, under the control of a Government, the ByteCoin is controlled by the worker units put in to process transactions.
The Follar has all sorts of currency controls used to spy on and control the citizens of the Country, where the ByteCoin has non of those restrictions.
I would postulate that over the course of time, without collaborative effort by FIAT currency Countries, the ByteCoin will present a greater flow of goods and services, providing more value over time. Since both are fiat currencies, the one with least restrictions will become the preferred currency.
The greatest liberty generator is that where anyone can be or do anything they want, without restriction.
Agent K: A *person* is smart. People are dumb, stupid, panicky animals, and you know it.
The smart money is fleeing China, and to get around capital controls they are buying all the cryptocurrencies they can.
The reason the FDIC exists is because trust in currency stability is so important that they guarantee losses out of necessity. Our economic system built upon that bedrock depends on that trust. We've seen what happens already without it, without strong oversight and regulations. It doesn't take much to destroy these valuations when "it" happens.
The summary seems weird in the claim that its difficult, almost impossible, to 'value cryptocurrency' as we could a company. But who does that with a CURRENCY? How do you value ANY currency? We know for a fact that the value of the US dollar isn't set by any single entity, the volume of US 'dollars' in the economy isn't even controlled by any single entity (banks create money via loans etc.). The 'value' of something is what someone else is willing to pay for it. So the value of cryptocurrencies is $100 Billion (US presumably) because the world is willing to exchange US dollars for bitcoin, why look for 'magic' in that number?
The bitcoins are as the numbers in the air (who does control it?).
Until that Internet is massively shutdown, the servers of bitcoins will be shutdown too,
And it will create a chaos among the people that uses bitcoins.
Bitcoin was created by CIA
Unaccountable, untraceable way to fund their black ops. Much better than selling drugs and running guns (which they used to do in the primitive old days)
https://www.youtube.com/watch?v=XbZ8zDpX2Mg
why are we comparing a currancy to a stock? How does the Euro have value without an EPS? This should probably work that way.
Look up how local currencies work and how they are valued between peers.
That will tell you both why and how Bitcoin is where it is.
Cryptocurrencies are local currencies taken global, but without whatever fucking retarded thing happened to make the current global economy the mess it is now.
If you are lazy, tl;dr: the value is agreed upon between those that trade. There is no standard price for anything.
Even companies that trade from fiat to CC don't agree on prices some times.
There are some local currencies with a max cap on how much of the currency you can obtain to prevent hoarding and encourage work. These generally do better than the ones with no cap.
The intrinsic value of 1 unit isn't defined. A person could cut anothers grass and get 5 units whereas another could get 15. It depends on the two parties involved.
This is what cryptocurrencies are.
Will they go anywhere? Fuck knows. But they certainly are gaining momentum and there IS money to be made on them whether you like it or not.
ANY single thing that has value to a group of people has a chance for money-making to happen.
In the case of CC, it is heavy speculation and trolling others in to pump and dumps. A single tweet was enough to shave off several hundred dollars off Bitcoins worth a while back. And this is because all of the people using the "not-local" currency are open to seeing transactions.
It really interests me seeing how it evolves with time.
Which is exactly what distinguishes gold from BitCoin, which is not a stable store of value. It may be one in the future, but this kind of volatility does not bode well.
Those who advocate genocide deserve every protection afforded by law, and none afforded by common human decency.
Unbelievably high values for something that doesn't actually have any intrinsic value are generally followed by crashes.
This is obviously a conspiracy theory, and I have no evidence, but the shady origin of Bitcoin (nobody really knows who Satoshi Nakamoto is) could mean that it was engineered by a national actor to crash national economies. It is, after all, a caricature of fiat currency.
Bruce Perens.
What you're missing is that while the miner does need to take into account his expenditure for finding a block, that's not the determining factor in the price of BTC.
As with all things, the price is determined by demand : There's someone out there who desperately wants to buy some BTC because that's what he needs to complete some other transaction; for example, perhaps there is some "crazy" guy who is selling a dream car, but only for BTC, and that seller is doing this because he himself wants to buy a lot of weed through a website drug market (which is only made possible by Bitcoin), etc.
The value of BTC comes from the fact that it is facilitating human interaction.
Now, this is not an "intrinsic" value, because there is no such thing as "intrinsic" value; rather, it's a value that simply exists currently— somebody finds it useful, and that person's demand is what ultimately drives the value.
I say cryptocurrencies are fun!
First is that gold bugs hate inflation. They see it as the ultimate evil. They like deflation. Well gold can lead to deflation, and likely would in the long run due to its limited supply, but bitcoin is guaranteed to have deflation given its design. So they like it because if it is used it would guarantee deflation.
The second is something you might have guessed from the first, it is because they don't know shit about money. They don't really have an understanding of what makes money what it is, or what makes a given currency good or bad. They see big amounts = good, big gains = good. Since both gold and bitcoin have been on a run as of late, that makes them good.
Imagine if you wanted to pay for a couple pizzas with bitcoin today you'd have to pony up $3-$6 in transaction fees due to the rise in price of the bitcoin. Transaction fees are limiting factor of bitcoin price to some extent.
Destroy the dollar and you destroy Americas power.
The dollar is about to lose it's position as Reserve Currency.
This would neuter the American financial hegemony.
There are mechanisms for estimating the "value" of currencies, hence accusations that the Chinese were undervaluing their currency that have been expressed the last few years. I'm not an economist, so I'm not going to try and explain them. The question here isn't can a currency be valued, it's is Bitcoin a true currency, an asset, a store of value, or something else? What it is will determine how you value it, and at this point it may be the case that we don't really know how to value it.
Does anyone know if Venezuelans are all using some kind of crypto-coin instead of their own, nearly worthless, national currency?
The End of Slavery
http://www.economist.com/news/leaders/21669875-americas-economic-supremacy-fades-primacy-dollar-looks-unsustainable-dominant-and
https://www.foreignpolicyjournal.com/2017/06/03/is-bitcoin-standing-in-for-gold/
http://sgtreport.com/2017/06/china-in-process-of-finally-destroying-the-petrodollar-by-negotiating-an-agreement-with-saudi-arabia-to-denominate-oil-in-yuan/
https://www.winton.com/en/history-of-finance/history-of-modern-international-monetary-system
https://decentralize.today/how-trump-could-end-the-dollar-era-6e127511098d
https://cointelegraph.com/news/how-bitcoin-blockchain-and-ripple-may-help-kill-us-dollar
https://thedailycoin.org/2017/06/07/andy-hoffman-bitcoin-gold-form-two-front-war-central-banks/
http://original.antiwar.com/nozomi_hayase/2015/04/09/with-looming-financial-war-bitcoin-ushers-in-peaceful-insurrection/
http://www.businessinsider.com/positives-and-negatives-of-bitcoin-2016-8
http://www.zerohedge.com/category/tags/reserve-currency
http://www.e-ir.info/2013/09/16/bitcoin-vs-dollar-hegemony/
Is there any reason why, when posing a question about currency, you would not ask ANY macroeconomists?
Your accountants have just told you that the risk of offshore bank accounts is too high, thanks to those schmucks at Mossack Fonseca.
The only solution left to hide your assets is the First International Bank of Blockchain.
Lots of cash pouring in, with an inherently deflating asset, the price has to climb.
Mission: To provide products that consume time and energy as entertainingly as permitted by the laws of thermodynamics.
I've seen two big bubbles in my life in the USA come crashing down - the internet bubble of the 1990s and the previous decade's housing bubble. Here are the signs of a bubble.
1) Prices keep going up even though intelligent people (Slashdotters, for example) can't see any real justification for it.
2) People who don't know anything about the subject come to the conclusion that it will last forever and can't ever lose money.
3) People believe it can't ever go down and start investing in it as a retirement strategy.
4) Stupid people start getting into it. No offense, but when your waitress decides that cryptocurrency is going to be her ticket to becoming wealthy, it's time to get out of it.
5) People start finding high risk ways to put money they don't have into it because they believe that as the price will only go up, they'll soon turn enough profits to pay back the high risk loans they got. Examples would be buying stock on margin and subprime home loans.
6) Big money banks/investment firms in the USA find new ways to invest in it that nobody understands.
You keep bashing the crypto, I'll keep counting my cash.
People horde things all the time. As people horde things the price will continue to climb because the thing people are hording will become more scarce. But sooner or later some one will want to cash out, and that will make the price start to drop just a little. Then when the price starts to drop, more people will hit the "sell" button causing the price to drop faster. Then EVERYONE is going to hit the sell button and the price will plummet to near zero because no one will want to buy while the price is dropping, which will cause the price to drop faster and faster and faster. Moral of the story: Sell NOW! Beat the rush and be happy that you won.
The comparison with the stock market is irrelevant. As for any currency, bitcoin value has to do with the trust people put in, without the interference of a central bank to play with the interest rates on deposits. Contrary to gold, it has no other use than to store value and transfer it, i.e. no bitcoin jewel or electronic components. It can be easily divided and transferred, with no interference. It might not be as efficient to clear transactions as your credit card, but it is a great concept, and more than in theory. However the barrier to entry is still high, and there are still risky dimensions, such as exchanges, theft of private key, poor understanding. Crypto currencies are there to stay, that real questions is which one(s). Limited supply combined with broader adoptions does mean higher value, but then again, a lot of volatility to expect.
Wow. I'm impressed at the ignorance displayed here. "Intrinsic value" huh? Apple stock has an "intrinsic value"?? No, it doesn't. Fair price is defined as the price a buyer is willing to buy at and a seller is willing to sell at, given no other inducements. (Like that guy standing over there with the baseball bat.) Well, opportunity costs. That is, no transaction is context free. What price any particular person ascribes to an object depends on their mood, wealth (ability to pay), need, & desire. Which of these is constant? It is blathering nonsense to claim land, buildings, property, machines, patents, trademarks or anything else has some magical property called value. Market value is the 'equilibrium price' established by the 'market' for something. The larger the market, the more likely the 'value' is to be near its equilibrium price, but price (value) is established incrementally for most goods and services. Take sex for example... Or take a 10 dollar bill. Is what you'd do to acquire it the same now as it was 10 or 20 years ago? What kind of ignoramus actually thinks "value" is like mass or any other intrinsic physical property?
One explanation of Wannacry is that the purpose is not the direct collection of ransoms, but to manipulate the value of Bitcoin by causing a surge in the number of new users. Note that the value of Bitcoin doubled over the period in question.
Just look at the growth curve. This has nothing to do with value; intrinsic or perceived. Bitcoin merely has this value because investors are piling in - and because Japan recently recognised it as a currency.
But it isn't.
It is not backed by any thing or government
and like all bubbles the time to get OUT is when all the household investors start buying it. People who have never heard of cryptocurrencies until they read an article in the popular media and then "invest", they never make any money. They tend to buy at the top of the market and lose a packet when the inevitable crash happens.
politicians are like babies' nappies: they should both be changed regularly and for the same reasons
HAHAHaHAHaHAhAHaHA! (see subject).
Simple supply and demand solves this. If it is hard to find someone willing to sell then the price is too low. If nobody wants to buy the price is too high.
Early in the development of BItcoin or any other cryptocurrency, there was the fear that some exploitable cranny in the mining algorithm could be used to inflate the money supply beyond what the exponentially-more-difficult algorithm was supposed to allow, or that the encryption would be broken. There seems to be a feeling today that BTC has been around long enough now that no such vulnerabilities will appear.
The weakest part of Bitcoin currently seems to be the exchanges. Having another major exchange poofed by hackers could be the what puts an end to this bubble.
Am I the dullest knife in the drawer?
Because, seriously, I can't tell the difference between these two arguments.
Thanks, very informative post.
The recent worldwide ransomware attack, which encrypts computer data unless the hackers are paid in Bitcoin is probably the cause of the increase. Demand goes up as institutions and companies, including hospitals, see that there is nothing they can do but buy bitcoins and pay the criminals.
E Proelio Veritas.
If bitcoin gets big enough, the actual rules will be set by whoever is able to [legally] access enormous amounts of cheap energy.
*waves hands* You will want things that others want, because other want those things *waves hands*
have found a new playground, with less SEC investigation.
Wow, I thought this was a website for technology enthusiasts. Why is everyone so down on bitcoin?
I would think that if there was any online community where people could separate the badness of ransomware to the goodness of decentralized currency it would be here. But that isn't true. From the comments section you would think that this item was linked on the Drudge Report.
Value of any currency usually depends of the stability of the governing body. So long as people mine CC's then they will be prized. So basically hardware used to mine the stuff is the governing body and so long as its progressive then CC's will be sort after.
> There is one rational explanation that, if true, would totally justify this rapid increase in price across some of the major cryptocurrencies. And that is:
Ransomware, which are widespread extortion schemes based on computer malware using strong data encryption to hold files hostage and only release them in exchange for a payment made in quasi-anonymous crypto-currencies, usually bitcoins.
The solution is to drawn and quarter those receivers of stolen goods who exchange bitcoinc and other crypto-currencies into anything tangible, like US dollar bills or sports cars or illegal mind-modification substances or the services of protitutes. If those people hanged in public from the Tyburn Tree until a crow plucks their eyes out, the frenzy would cease overnight. There are few issues in the world which cannot be solved by the stringent application of military summary law.
And what "fundamentals" would those be, exactly?
The actual transactional volume of cryptocurrencies. The value of the goods bought/sold with the cryptocurrencies. Etc. Derivative financial instruments and funds are essentially side bets on the underlying asset (such as bitcoin) and typically have at best a loose correlation to the actual value of the asset. Think of it like the difference between the amount of money the NFL makes (several billion/year) versus the amount of money bet on NFL games per year (FAR more). People are looking at the amount being bet on bitcoin and conflating that with the actual value of the bitcoin economy. Not the same thing.
I own bitcoins, and the truth is, I earned tens and thousands of dollars investing in it early. I am still buying into it because I realized that it will not stop. When the next recession happens, bitcoin price will rocket up again because once everyone realizes that fiat currency is backed by the same hot air that bitcoin is, then everyone will realize that crypto-currecy is as legitimate as the paper you have in your pocket or the ones and zeroes in your bank. Countries rise and fall, and the currencies tied with it. Bitcoin has no country, only the understanding of many that believe that this will work and will not let it drop. As long as people like that exists, then this will continue. Bitcoin only needs that little to have value, and the positive force is greater than any negative force being pressed on it right now. Realize than only 20% of the world population know about bitcoin. Once everyone gets in, how much do you think it will be worth then?
I have made over a thousand dollars just by having my PC on and generating passive income. Then I sold it through the proper, legal channels using my legal name. Is there any other way to get so much money for literally nothing? There's your everyday bitcoiner there - contributing hashrate and exchange volume, which then supports the prices.