Both have a 1000 in circulation.
Both are worth $10 each.
Both have a market cap of $10,000 US Dollars.
But the market for AlphaCoins is "thin" (small changes in supply and demand make for really big price swings).
There's a run on the market and everybody wants to sell off their coins.
After a day's trading:
AlphaCoins price is $3 / coin.
BetaCoins price is $9 / coin.
For goods and services you'd call this the price elasticity of demand (You can change the price of medicine and people will keep paying it b/c without it they'd die - it's inelastic - the same can't be said for a snack bag of cheetos).
To me, this is the article's argument. That while these terms describe the same things across markets there are some big differences not captured in simple "market cap" comparisons.
Maybe a better analogy is two all you can eat restaurants (identical, yadda yadda) but at one you can use your full set of dining implements and at the other you can only use a fragile toothpick to eat your food with - and all anyone can write about is how the quantity of food in both places is the same.
What I find interesting, in addition to your description of the price elasticity being at issue, is precisely _what_ a bitcoin represents.
In fact, what _all_ cryptocurrency represent, to my knowledge...and that is, some increasingly unbreakable cryptographical mechanism by which information may be passed at ever more secret rates.
The question I have is: precisely who is in the market for such things, and are they not, in fact, what is holding these currencies together?
It also begs the question: if the person who can afford to 'buy' the cryptographical information is the one "funding" the market, are we not at the beck and call of the deepest pockets in terms of securing what may ultimately be state-secret level data?
I recall reading some article about how, when mining for bitcoin (for example), what was really being mined are progressively larger prime numbers, or scientific data, or some such data requiring lots of computation.
Isn't there something of real value being mined? If not, what is being done when people _mine_ bitcoins?
Having a large amount of work required is what prevents a malicious actor from tampering with the chain, since doing so requires doing as much work as all the other miners together.
You're most likely thinking about Primecoin[0].
> Isn't there something of real value being mined? If not, what is being done when people _mine_ bitcoins?
"Real value" in a computational sense is difficult to articulate. Making a calculation part of a mining algorithm that ultimately results in _new_ information is challenging because it, by definition, requires a lot of effort to not just calculate, but verify. Folding proteins, searching SETI datasets, etc. presumably require the same amount of effort to verify as they do to solve in the first place. The way that cryptocurrencies that use a "proof of work" ("PoW") are typically set up is to make it very difficult to solve a computation, but very easy for others to verify that the solution is correct. The other component of PoW that makes it beneficial as a verification tool is the ability to increase or decrease the difficulty of solving the calculations required by the network. Without the concept of adjustable "difficulty," a network could not adapt or grow as more (or less) computational power is brought online. This difficulty of computation is a core component of the decentralized, distributed nature of blockchains.
If you'd like to learn more about it, here are a couple of resources to get you started:
- "Proof of Work" (Wikipedia)[1]
- "Is there a way to set up proof-of-work systems so they would be even more useful?" (StackExchange, orig. asked in Sept. 2011, updated Dec. 2017)[2]
- "The Fair Cost of Bitcoin Proof of Work" (Tomaso Aste, University College London, 2016)[3]
- "FoldingCoin" (HN discussion, Jan. 2015)[4]
Bitcoin's hashing scheme's "value" is in its ability to make it computationally difficult (and of significant real cost) to attempt to cheat the network.
Simplifying a very complex discussion, you can consider it, in a limited sense, analogous to the different ways that the World's governments and assorted financial institutions spend untold billions of USD, EUR, RMB, YEN, etc. every year to secure, confirm, compensate, and extend the underlying infrastructures that support global financial exchange.
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[1] https://en.wikipedia.org/wiki/Proof-of-work_system
[2] https://bitcoin.stackexchange.com/questions/331/is-there-a-w...
[3] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2801048 (Note: A subscription to Elsevier is not required to view or download this research paper)
I'd say what the asset is, but I can't because if literally only one other person reading this decided to buy some then I effectively wouldn't have the option to buy more of it.
This is how markets work.
I actually consider it seriously unethical to market cryptos as an investment to retail investors - they just do not understand the insane levels of risk, including the actual exchange as a threat. And yes, I know what Bitcoin's pitch is. I still think it's unethical in practice, and this bubble is going to show why.
Market cap makes more sense for a stock, because it's in the range of the value for a company, and a whole company is something that does get bought and sold. This idea doesn't make any sense for a crypto.
When I make an investment in a company I'm providing capital that that company can use in various ways.
In return I become an (very small) owner of the company. I get a say in how it's run (voting rights), and I get a share of the profit (in dividends).
If you hold on to a stock like coca cola for 30 years, never looking at the stock price, and never sell, you'll actually make money.
Yes there's risk, coca cola could go out of business. But that's pretty unlikely, and if you're not willing to take that risk, consider using a diversification strategy. Buy some passively managed ETFs.
Even with the crisis, in the long run, you would've made money. Investing is not gambling, it's not a zero sum game and the fundamentals of it have some basis in reality.
Whatever is happening with Bitcoin right now makes no sense. Eventually things like this have to realign with reality.
It starts with an easily-digestible and shareable argument, like “Bitcoin prices and market cap are a lie.” Then someone points out that, yes, perhaps many people misunderstand basic concepts in finance like spread and market cap, but that applies to any asset or currency or security.
Then someone else joins in with a completely unrelated argument, like “yeah, but Bitcoins don’t actually do or represent anything, whereas stocks do.” Even assuming this is a valid argument, it doesn’t change the invalidity of the first argument. But I fear that all too often people see the entire exchange as if it’s a sequence of related claims, and thus feel inclined to believe and share the initial talking point as if it was somehow corroborated by the later unrelated argument.
2. The majority of stocks do not provide (and will never) dividends and the majority of buyers have no voting rights.
but you are right. For practical purposes, the stock market is not pure gambling. There are institutions that make it legitimate. Such as the SEC, pensions, 401ks and brokerage firms. And the fact the government cares so much about it going up (because it funds so many pensions and social security might go away)
But lets not fool ourselves in thinking the stock market is a virtuous piece of infrastructure. The vast majority of stock holders dont know anything about the conpanies they invest nor how stocks even work. They invest blindly in it through mutual funds or 401ks.
Similarly, buying and holding Bitcoin has a range of effects that help the network and generate real wealth. Bitcoin is a services company, a payment network, a bank, and investment vehicle, a reflection of wealth in that economy, a notary, a liberated, sound money and a protest - all disguised as a get rich quick scheme.
Public market performance influences IPO performance. IPO performance directly knocks on future managements’ decisions around going public or raising a private round. The performance of those moves influences early-stage capital availability through multiple channels. Equity markets, broadly, are complicated, but they are an essential component to fuelling firm creation and growth.
Cryptos, on the other hand, are entirely based on investor confidence.
Cryptocurrencies aren't backed by tangible assets, so the price floor is 0.
Speculating: http://www.macrotrends.net/1333/historical-gold-prices-100-y...
Which one do you think bitcoin is? Well I'll tell you, it's the second.
Market cap makes more sense for a stock, because it's in the range of the value for a company, and a whole company is something that does get bought and sold. This idea doesn't make any sense for a crypto.
I'm not a financial wiz kid, but market cap for a currency doesn't make any frigging sense to begin with.
Sure, you can count the amount floating around for a currency on various levelse (ususally expressed in mx) but I never felt that it makes sense to define this as "market cap".
The whole situation really reminds me of the Dutch tulip mania (https://en.wikipedia.org/wiki/Tulip_mania, the first speculative bubble in history).
At least with your "investment" there you were able to plant pretty flowers. Here, I fear, that a lot of small investors will get burned very, very badly.
The vested interest has been very successful in obscuring this basic fact, usually by conflating it with a bunch of other unrelated matters (decentralized infrastructure, fee-less money transfer, easy international trade...etc)
I penned a tongue-in-cheek layman description of bitcoin that alludes to the basic scaminess of it: http://blog.codesolvent.com/2017/12/the-bitcoin-scam-needs-t...
So exchanging fiat Euros for fiat Bitcoin means what, exactly?
Paper money or coins of little or no intrinsic value in themselves and not convertible into gold or silver, but made legal tender by fiat (order) of the government. [1]
Fiat money is an intrinsically worthless object, such as paper money, that is deemed to be money by law.
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I will say that when Japan agreed to accept payment of taxes, with Bitcoin, they deemed it to be money.
Probably I could find examples in the U.S. government prosecutions of criminals who used Bitcoin, that had government lawyers advancing arguments that treated Bitcoin as money, but, I don't have them to hand.
I'm really interested in figuring out if this is true. What source is saying this? From what I can tell some taxes might apply to Bitcoin in Japan but in no way can you actually "pay" taxes in Bitcoin (you can obviously convert it to Yen first though).
The aforementioned currencies are backed by the value of their issuer's economies, those economies are real.
Every American participating in that economy must pay taxes every year on their income. The taxes must be paid in US dollars, even if the economic activity uses a different currency or barter. Therefore Americans must come up with a quantity of USD proportional to the size of the American economy every year (or "go to prison"), and provided that the total amount of USD in existence is bounded (this part is the job of central banks) this places a floor on the value of USD. This story is necessarily simplified but I think essentially true.
There is an old saying that a language is a dialect with an army and a navy. Likewise, a fiat currency is a currency with a taxing authority.
Gold, on the other hand, is just valuable because it is expensive to produce and has a long history of being valuable. So that model can work.
I'm not able to find any reference to such a move, which I would think would be widely reported in English. So I suspect you may have your facts wrong. I read that Japan no longer collects sales tax on digital currency transactions, but that is not at all the same.
If, hypothetically, a major government accepted all tax payments and equivalents in XBT as well as their own currency, and credibly promised to keep doing so no matter what, they wouldn't so much be backing Bitcoin as "unbacking" their own currency. It would leave their citizens free to stop using fiat currency if they wanted, and if enough were eager to do that the value could go to zero. (In principle, that could be fine. In practice, contracts and other nominal rigidities would probably make the transition period... problematic)
If a major government decided to accept tax payments only in Bitcoin, they would be backing it in the sense intended.
(I'm not necessarily taking a bearish position on Bitcoin. Rather, I'm arguing that fiat currencies are not the right model for understanding its economics)
Bitcoins are expensive to produce and if it hangs around very long it will have a long history also. So in the long run bitcoin could be a viable alternative to gold.
Likewise, I own a $100 billion Zimbabwean dollar bill as a curiosity, but that market doesn't put an important floor on fiat currency prices!
If I can buy an item from Amazon or Overstock.com via Bitcoin or via Yen or via USD, explain how there is an actual difference.
> Quoting a number like “$19699.46” to seven significant figures when your data’s got a 5% spread would get your high school physics teacher slapping you upside the head. It’s entirely deceptive. It should say something like “$19,700 plus or minus $500 depending,” and that line graph should be a thick grey bar.
I don't see how it does anything of the sort.
* It's not the amount that was put in to it
* It's not the amount you could get out of it
It's a number that's easy to calculate and gets headlines, but I can't see what else it's good for in practical terms.
Perhaps with a tiny altcoin it would be worth 51%ing it. But for anything larger, or for an ICO token? What does this number actually do?
Say there's a crypto asset that isn't getting headlines. Its market cap is $100 million. Just knowing that, what do you know about the crypto?
If all I know about a crypto asset is that it has a market cap of $100 million, I know it's a very niche asset in comparison to bitcoin or ethereum. It's small enough it's reasonably likely to be a scam. For me personally, it's small enough that I'm not interested in learning any more, which has practical use because my time is finite.
> Market cap is extremely commonly cited for stock markets.
Yes.
Spreads usually depend on volume--high-volume securities tend to have a lower spread because there's a lot of market participants.
More established markets often have market makers (entities with simultaneous bids and asks) and arbitrageurs who make money off spreads between different exchanges. I usually look at this spread and arbitrage (which I'll get hit with when I buy or sell) as the price of having a liquid asset. For stocks, it tends to cost relatively little.
Market cap for Bitcoin is complicated because it's not known how many Bitcoins have been lost.
Ever since people stopped storing stock certificates in safe deposit boxes, this hasn't been an issue for equities. Even then, companies kept a ledger with ownership.
It's because there's an established system of trust, liability, responsibility, regulation and oversight in the network, assuming you're using any number of several dozen popular brokers (and that you're a common investor). Microsoft has a vested interest in knowing how many shares it actually has outstanding and who owns them; there's a chain that follows, that includes the CEO, CFO, board, other large powerful investors, regulators, common investors, and so on and so forth.
The scale and solved nature of it is roughly 100x that of Bitcoin in contrast.
http://investors.overstock.com/phoenix.zhtml?c=131091&p=irol...
You can just admit you don’t know.
I suspect it's only a matter of time before something like the DTCC is established for Bitcoin. Yes, from one perspective it would defeat the "trust-less" part of the system, but from another perspective it would enable instantaneous trades both within exchanges and between them. All that's necessary for this scheme to work is for the exchanges and other market participants to trust that the depository company will deliver on any assets it claims to owe them.
> PSA: The Bitfinex trade engine ALLOWS for WASH TRADING
> The trade engine on Bitfinex will allow you to buy and sell to your own orders, the procedures to do it are as follows (which will likely be ‘fixed’, or partially fixed after this post…)
Source: Wash Trading Bitcoin: How Bitfinex benefits from fraudulent trading => https://medium.com/@bitfinexed/wash-trading-bitcoin-how-bitf...
A random guy that self-taught himself PHP, for example, is not usually found (or even allowed) to build one of the biggest exchanges for developing markets. For Bitcoin though, they do.
Where I part ways is in your claim that the price is somehow illusory and it's impossible to cash out. Until recently I worked for a company that was mostly paid in crypto, and had no trouble selling it off, moving the money into a bank, and meeting payroll.
Crypto is new and the market infrastructure is immature; that means there's more risk, and also more return, just like the early days of other new asset classes that have arisen over the past century. William Bernstein wrote about this in his recent Investing for Adults series.
Didn’t one of the major crypto exchanges recently lose all its correspondents for awhile and then picked up a single one again?
Coinbase and Gemini, for example, are U.S. exchanges that strictly follow money transmission regulations and AML/KYC. They're not likely to have banking problems, at least under the current regime. If you go with a sketchy foreign exchange so you can stay anonymous, you're more likely to run into problems.
Unfortunately, this has left them with much lower volumes than the more cowboy exchanges ...
The motivation for this is that I keep hearing from friends asking "help, [relative] thinks bitcoins are a good idea! what do I do?" So instead of abstruse jargon-laden blockchain inside baseball posts, I tried to write something more accessible about the problems.
Sure, the effects may be stronger in Bitcoin due to its higher volatility, lower volume, etc., but that should be the author’s argument, instead of “if you don’t know the basic Finance 101 definitions of some common terms, then you might get confused.”