Slashdot Mirror
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".
Yes, this.
It's pretty much a Ponzi scheme.
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.
It becomes a Ponzi scheme when one or a small group of people benefit from the wealth, and the value of current bitcoins is driven by a constant flow of new buyers.
Actually, it becomes a Ponzi scheme when the investments of new buyers are used to pay the returns on the investments of the earlier buyers.
Since cryptocurrencies do actually pay any returns, they can never actually be a Ponzi scheme. Though you could, in theory, run a Ponzi scheme that uses cryptocurrencies... You could also try to argue that the entire marketplace for cryptocurrencies is a Ponzi scheme, but it doesn't fit the definition very well. The central problem is that new investments aren't actually paying the returns (profits) of earlier investors, instead the new investments are buying the inherently worthless numbers that the earlier investors own, which is generally considered a bubble.
And to answer the submission's question, the proper value for a cryptocurrency is however much the collection of people who want to buy them are willing to pay for them. They have no inherent value. They're the opposite of gold-backed currency, they're demand-backed currency. If next week everyone decided that cryptocurrencies were a fad, they'd all be worthless. It's not likely to be that extreme, but buyer beware.
Fanatically anti-fanatical