Re:Buffett Says Stock Ownership Became More Attractive With ...
by mywittyname on Wednesday January 10, 2018 @12:42PM
(#16117051)
> why do you think Bitcoin is undervalued
I see it as a variation of a tontine. But instead of people increasing in value when a member dies, it does such when a member loses access to a coin. Once that coin is lost, it can never be sold, thus cannot drive down the price.
But the interesting thing about this is, AFAIK, there's no way to accurately determine if a coin has been lost permanently or not, so the the true value of all accessible coins will be completely disconnected from the market cap. So people using market cap as a valuation metric will always be considering at a wildly optimistic one.
For example:
Coin A purchased at $100.
Coin B purchased at $120.
Coin C purchased at $130.
Current bid price $150.
If access to Coin B is permanently lost, then one of two things happen, A) the market cap falls from $450 to $300 to reflect the reduced number of coins, or B) the market cap is maintained at $450, and the "real value" of each coin is $225. Because it's impossible to know which coins are lost, the valuation metric will always be B.
Essentially, the owner of Coin B lost 100% of their investment, and the paper value of his asset was invisibly transferred to the owners of the remaining coins.
My opinion is that cryptos will be undervalued until one of two things happens, A) coin management becomes more robust and they stop being lost permanently, B) people realize that investors realize that there's a very real risk of their investment going to $0 (without the market crashing) and begin to price in that risk (much like unsecured v. secured credit pricing).
I see it as a variation of a tontine. But instead of people increasing in value when a member dies, it does such when a member loses access to a coin. Once that coin is lost, it can never be sold, thus cannot drive down the price.
But the interesting thing about this is, AFAIK, there's no way to accurately determine if a coin has been lost permanently or not, so the the true value of all accessible coins will be completely disconnected from the market cap. So people using market cap as a valuation metric will always be considering at a wildly optimistic one.
For example:
Coin A purchased at $100.
Coin B purchased at $120.
Coin C purchased at $130.
Current bid price $150.
If access to Coin B is permanently lost, then one of two things happen, A) the market cap falls from $450 to $300 to reflect the reduced number of coins, or B) the market cap is maintained at $450, and the "real value" of each coin is $225. Because it's impossible to know which coins are lost, the valuation metric will always be B.
Essentially, the owner of Coin B lost 100% of their investment, and the paper value of his asset was invisibly transferred to the owners of the remaining coins.
My opinion is that cryptos will be undervalued until one of two things happens, A) coin management becomes more robust and they stop being lost permanently, B) people realize that investors realize that there's a very real risk of their investment going to $0 (without the market crashing) and begin to price in that risk (much like unsecured v. secured credit pricing).