It's less and less true as time goes by, Bitcoin dominance on the other currencies was about 85% in February, now it's only about 38%.
The problem with market cap is that it multiplies the last traded price with total supply, thereby assuming that there exists people willing to purchase all coins in existence at the same price (the mid price of the order book).
Thankfully, we don’t need to make this assumption, since the order books of most exchanges are public. But, as far as I’m aware, no websites compare coins by market depth, unfortunately.
It’s a bit like me selling a painting I’ve painted for $10,000, and then creating 100 of the same paintings and claiming I’m a millionaire. It doesn’t work like that for illiquid assets (I’d probably be lucky to find even a single new buyer at the same price).
I disagree. Many exchanges have public order books, so you can see exactly how much the price would slip if you sold, e.g., $1m worth of a coin. This is what is relevant for something functioning like money, not the last traded price multiplied by number of coins in existence.
Yeah, but if you wanted to sell $1M worth of coins you'd probably use an auction at Gemini or elsewhere so you don't move through more than 2 or 3 price levels of the book.
You'd also probably enable some sort of smart selling algo for the same reason were you try and move $1M worth of BTC not at auction.
You could make the same argument for Gold or Platinum being over valued based on slippage from open interest at a point in time.
Selling $1m worth of bitcoins on GDAX, Bitstamp and Bitfinex results in a slippage of 0.2864%, 0.3527%, and 0.2910%, respectively.
As far as I can gather from Gemini's fee schedule[1], they take a >0.40% fee even if you've traded for more than $10m in the past 30 days, so I'm not sure it's worth it for a $1m market sell.
[1] https://gemini.com/fee-schedule/#fee-schedule
> You could make the same argument for Gold or Platinum being over valued based on slippage from open interest at a point in time.
I disagree. I'm not arguing that anything is over-valued. Simply that market cap as a measure of value of commodities does not make sense, because of the great difference in marginal utility between them.
BUY 10 BTC @ 15,000 USD
BUY 10 BTC @ 14,900 USD
BUY 50 BTC @ 14,800 USD
A trader can easily inflate volume by creating two accounts and trading back and forth with himself, thus making his two deposits count many times over in the trading volume of that exchange. But in the order book his deposits can only count once.
Only if the exchange in question charges trading fees.
> And If you don't like using the volume or market cap, what do you use?
Market depth. Looking at the order book to see how much money is bidding on/being sold for bitcoins right now. See my reply to other comments for an elaboration.
Of course, the huge dark side to that is that there's now a way to easily send money in a way you cannot reverse. This provides a huge incentive for things like kidnappers demanding their ransom in bitcoin. It's often valuable to be physically incapable of doing things.
I'm long-run bearish on Bitcoin because of this analysis - the majority of its value is in something that makes governments and other coordination mechanisms interested in destroying it.
Bitcoin just kind of flips the problem, it doesn't solve it. In a world where payments can easily be reversed, sellers take on all the risk. In a world where they can't be, buyers take all the risk.
You can get pretty far with a reputation system, and in a market with many more buyers than sellers it's nice that now only the seller's reputation matters. But for a lot of people there's still benefit in having a trusted middleman like Paypal.
Technically, but not legally.
Transfers are 100% reversible by going to court, so Bitcoin is really only non-reversible for criminal activity (dealing drugs, gambling, etc) where someone cannot bring an action because the contract was illegal in the first place.
This technical non-repudiability is a feature that only works for criminals and is an anti-feature for legitimate users.
1. It's being mispriced by the market for some reason and will correct over time (i.e. it will lose valuation compared to other cryptos). This seems to have happened some in the past 2 weeks or so, but it's pretty early to see how this will play out.
2. The network effect of already being the biggest is strong enough to offset its "weaknesses" relative to other currencies.
3. The primary value of bitcoin, at least at present and in the short to medium term, is different than crypto enthusiasts believe. There is massive value in being a decentralized, secure, easily transferrable store of relatively large amounts of money, as basically a settlement layer. And there is relatively less value (at the current time) in being a new payment method to buy everything down to a cup of coffee, or powering smart contracts, or other things that crypto enthusiasts get excited about. To the extent that those things become important to the market, usage of Ethereum or other coins will increase. To the extent that privacy becomes important to the market, usage of ZCash or Monero or other coins will increase, etc. But the increases of these others won't necessarily reduce the primary value of Bitcoin itself.
I personally think #3 is true, although long-term factors like the energy consumption of mining may be strong enough to render other currencies significantly better even for this primary use case.