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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.
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.
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.
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
You can make as many cryptocurrencies as you wish,
The value of cryptocurrency comes from the network effect. Sure you can take the Bitcoin code, and create a new blockchain, and change the name, but if nobody wants to use your coin, it's not worth anything. In order to gain value over existing coins it must offer some new distinguishing features that people actually care about.
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.