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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.
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.
Bitcoin will be the new pets.com or webvan!
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.
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
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
Yeah but you can use gold for things, even post-apocalypse. Paper money is at least paper... Bitcoin is even more ephemeral than my electronic dollars at the bank.
Why are proponents of gold standard also proponents of Bitcoin? You can't get any more fiat than Bitcoin. Nothing at all backs it up, even less than government promise backing up real money.
I'm a good cook. I'm a fantastic eater. - Steven Brust
The *theory* is that there is some hard upper limit that cannot be manipulated on a whim by humans in control, one by physical reality and one by math.
In practice, it's not so clean, and contrary to how preppers feel, in general the economy is much better now than it was in the gold standard days.
XML is like violence. If it doesn't solve the problem, use more.
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.
The first people in to a pyramid scheme usually do well. It's everybody else...
Bruce Perens.
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.
Yeah but you can use gold for things, even post-apocalypse
While technically true, the very post-apocalypse utility of gold does not explain its current valuation. Based on that logic, you'd expect stainless steel to have a higher value than gold, because it's more useful. Same with paper in paper money. A $100 bill has the same paper as a $20 bill, so this does not help explain the value either.
Bitcoin is even more ephemeral than my electronic dollars at the bank
Your electronic dollars at the bank are just ones and zeroes, just like bitcoin. The only real difference is the central vs distributed transaction model.
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.
The suit or 5-star restaurant arguments are devious because these are both items available at a wide variety of price points. A "fine" suit could be defined as a Men's Warehouse basic suit that is at least all wool (~$300), or it could be defined as the finest bespoke Saville Row suit ($10k+). "Armani Suit" is a ridiculous measure of value because Armani actually makes suits at a fairly wide range of price points with several sub brands. A "5-star restaurant" could be defined as a basic entree and appetizer at a nice steakhouse with no alcohol (~$100) or it could be defined as a spot at a multi-Michelin star restaurant with the finest Bordeux to wash it down ($1k+).
Long story short, compared to real goods, the price of gold has varied widely. In the last 100 years, an ounce of gold has been worth as much as $2,500 in 2017 dollars or as little as $300. At times, it's bought a J.C. Penny Suit, at other's it's bought a fine bespoke suit.