13 ms·

To deflate the cryptocurrency token bubble, fix the market cap indicator

95 points by serg_chernata 9y ago

Rmilb 9y ago
Lots of people are seeing these ICOs as easy money. It is unbelievable how many people will invest their money (mostly bitcoin gains) into unproven teams without a product and barely a white paper. Unhappy investors from events like this may draw more attention of the SEC or CTFC.
- RexetBlell 9y ago
  It's not mostly Bitcoin gains. Lately people are buying over 100,000,000 USD worth of Ether per day with mostly fiat (and not Bitcoin) in order to invest in these ICOs.
  - frakr 9y ago
    Do you have a source for that statistic?
    - beaner 9y ago
      https://exchangewar.info/coinprice?eth_usd https://exchangewar.info/coinprice?eth_usd
    - RexetBlell 9y ago
      https://coinmarketcap.com/currencies/ethereum/#markets https://coinmarketcap.com/currencies/ethereum/#markets
Kinnard 9y ago
Spanish Price Revolution: https://en.wikipedia.org/wiki/Spanish_Price_Revolution https://en.wikipedia.org/wiki/Spanish_Price_Revolution
highd 9y ago
Are these valuations really that outrageous compared to startups? Yes they're really early, but the ETH platform is a huge force multiplier in terms of decentralized scaling engineering that you don't have to do, not to mention the intrinsic benefits it has. If you think in terms of valuing based on how far a project has gone it seems crazy, but if you think in terms of valuing based on how far away it is, that actually lines up reasonably in my mind. $100M for a decent shot at eating a big chunk of a $10-100B industry in 2-3 years? I've seen crazier things in SV. Obviously a lot of these are scams, but there's some good ones, and I mostly agree with which ones the market has picked.
- zherbert 9y ago
  This blog post isnt making arguments about established tokens like Ethereum. Rather, it is criticizing the outrageous valuation of some tokens, like Gnosis, that have not even released a product yet but are valued at over $300m.
  - highd 9y ago
    Yeah, as am I. GNO, AUG and Golem all have some pretty compelling upside. EDIT: Also remember that these ICOs are not equity, they're generally pre-orders for functionality on the system. So it's sort of like comparing revenue vs profit.
    - Taek 9y ago
      In the case of GNO, we're talking a "pre-order" where less than 4.2% of the product was sold, with the dev team retaining the remaining 95.8% at a current valuation of about $900M. These assets can be sold at any time at market price (bringing the price down and diluting the market, but that's a risk I'm betting most GNO holders don't see.) And when we are talking about pre-selling functionality, we aren't talking about pre-selling a fixed amount of functionality. It's a speculative amount of functionality where you may be able to bet on a prediction market to the tune of $100, or you may be able to bet to the tune of $10,000, and you don't know until you see how successful the platform is. Your expected return curve there is very closely related to the expected return if you held equity, except a lot worse because you don't even have a claim to any non-Gnosis products that the team builds.
crypt1d 9y ago
I've been following Siacoin development very closely for the last couple of months. Their devs seem like one of the few remaining people in crypto that actually care about developing a working product/coin, vs just abusing the unregulated market and getting filthy rich. Kudos to the team for getting on the front page of HN. I'm sure this will raise awareness of their product at least a little bit. Just looking at the coin itself, looks like it jumped 10 points since this blog appeared.
- placeybordeaux 9y ago
  For those that aren't following it seems that siacoin is looking to provide an efficient distributed storage network made up of individuals that offer a contact to store data. To offer the contract the host puts up collateral that will be given to the renter if the host fails to provide a proof of storage (my guess before reading the paper is that the contract gives a hash and a file size and the host is responsible for giving a file of that size and that hash if there is a dispute). Seems cool. I have an always on computer & ~100 GB free, I might experiment with running a node.
  - nemo1618 9y ago
    >my guess before reading the paper is that the contract gives a hash and a file size and the host is responsible for giving a file of that size and that hash if there is a dispute Close! Sia uses Merkle trees to construct the storage proof. The storage contract specifies the Merkle tree root hash. The host must then provide one of the "leaves" of the tree (64 bytes of actual data), along with the other subtree roots in the tree necessary to construct the root hash. The consensus algorithm can then verify that by hashing the leaf and combining it with the other subtree roots, the top-level root can be obtained. This is a lot more compact and efficient than sending the entire file contents. The only trick is selecting which leaf to demand from the host -- if it could be predicted in advance, the host could cheat and store less data. But it can't be purely random either, since all nodes on the network need to pick the same leaf to arrive at consensus. So the leaf is chosen using existing entropy in the blockchain (e.g. the hash of the last block), so that it's both deterministic and difficult for an attacker to control.
draw_down 9y ago
Sorry, what is this about? The first 2-3 paragraphs are almost incomprehensible.
- fragsworth 9y ago
  The context is tradeable tokens that are built on top of cryptocurrency platforms like Ethereum.
  - soVeryTired 9y ago
    So nonsense squared, then.
    - gibybo 9y ago
      There is $30+ billion currently invested in cryptocurrencies. While the masses may still not know very much about it, I think we're beyond the point where any individual educated in how they work can reasonably call it nonsense.
      - 467568985476 9y ago
        For those of us not familiar with this particular financial product (is that even the right term?), could you elaborate on the $30+ billion dollar figure? How do you arrive at that number?
        gibybo 9y ago
        My figure was from http://coinmarketcap.com/ http://coinmarketcap.com/ (look at the top) I rounded down a bit to compensate for some of the lower volume cryptocurrencies and any potential issues with market cap that it might not be reporting correctly. You can get to $30 billion just by taking the current total number of Bitcoin + Ether outstanding and multiplying by their respective token prices. Admittedly both numbers are inflated some amount due to tokens being unknowingly lost/destroyed, but I think we're still in the ballpark of $30B. There is also a few hundred million (possibly low single digit billions) of venture capital in startups based on cryptocurrencies.
aml183 9y ago
There is not a bubble. Gnosis value has been cut to $100MM. The markets are working efficiently and punishing ICOs on valuation. Many ICOs have failed and not raised money. The market is focusing on these mega projects and not looking at the whole picture.
- Taek 9y ago
  This comment proves the entire point of the post. The Gnosis token is currently trading at more than 3x what it sold for during the pre-sale. It has gained in value A LOT, and people don't even realize that Gnosis is a success story. The price hasn't been cut at all. The originally advertised $300M valuation included the dev tokens. The $100M you reference does not. To compare to the dev tokens, check this chart (putting the current full valuation at $960M): http://coinmarketcap.com/assets/views/market-cap-by-total-supply/ http://coinmarketcap.com/assets/views/market-cap-by-total-su...
  - aml183 9y ago
    I apologize. You are right. I don't think Gnosis is healthy for the market. The incentives of the ICO were very misaligned. However, I still think the team is very strong and the potential is there. The market roots out companies that aren't up to snuff. Once you go below the top 20 crypto assets, the market starts dropping off fast.
- brilliantcode 9y ago
  It's absolutely a bubble very much like the HYIP forums from the early 2000s.
- gibybo 9y ago
  It hasn't been cut to $100 million, the current market cap using the total supply (which is absolutely the number that should be used) is $958 million. Coinmarketcap (and others) is falsely claiming it to be $105 million, and that's dangerous.
deleted 9y ago
[deleted]
gibybo 9y ago
Is there a reasonably safe/reliable/cheap way to short Gnosis? I'm guessing not, because there's a pretty easy $10-20 million to be made here and some hedge fund probably would have done it already if possible. I wonder if a smart contract could be created on Ethereum to securely borrow Gnosis. Perhaps with Eth as collateral. Anyone with experience building Ethereum contracts care to enlighten me?
- samlewis 9y ago
  You can margin trade on exchanges like Poloniex right now. Whether or not it's a bright idea is another matter. Even if you assume that it's presently overvalued, how can you know when (or even if) the bubble will pop?
  - gibybo 9y ago
    Well that's always the risk with shorting I suppose, I just meant as safe as shorting can reasonably be :) Thanks for the Poloniex tip though, looking into it now!
- davidgerard 9y ago
  "Shorting" turns out to be a complicated construct that needs a lot of regulatory pieces in place. The exchanges are largely unregulated, and have a track record of messing people around when a price changes quickly. Bitfinex is big on offering complicated margin trades that nobody else does ... but you can't get actual money out at the moment.
gwbas1c 9y ago
I keep smelling "pump and dump" when it comes to cryptocurrency. Perhaps when the bubble bursts the honest people will be able to get to work developing something worthwhile?
- bsder 9y ago
  Traceability and reversibility are features of our current monetary system that most users really like. The only users who don't like those features generally don't want to have to cough up their ill-gotten gains when they get caught.
RichardHeart 9y ago
Enterprise value is better than market cap. Market cap doesn't accurately reflect currencies, which is why they have M numbers like M2. The point in this article is that, currently outstanding currency tokens relationship to future inflated outstanding tokens is wildly different between currencies, and not accounted for in the "market cap" measurement. Thus, what many should be looking at, and aren't, is the known future inflation of the particular system. When you understand that you're going to be diluted, your current tokens ecosystem price should reflect that knowledge. Their suggestion for better understanding what the "value" of a cryptotoken should be understood as is good.
runeks 9y ago
If you want your token to be used as money, the only relevant metric is liquidity: how many USD/EUR/etc. are deposited into exchanges, bidding on/selling for the token in question right now? To prove my point, imagine I have created a crypto currency with 2^128 currency units, and I sell you one currency unit for a thousandth of a cent. Result: my crypto currency is now the "biggest" in the world, with a market cap of ~10^35 USD.
davidgerard 9y ago
"Market cap" is a basically ridiculous measure to use of crypto assets. It implies a realisability of price that really just isn't there. Trading is too thin and the price is too volatile, even for the most-traded one, Bitcoin. Consider the recent Bitcoin flash crash on GDAX, where BTC dropped from $1184 to 6 cents - this was courtesy about 100 BTC of trades. Then there's the Bitcoin "price", which is a weighted average ... including exchanges like Bitfinex, where the USD "price" includes a huge premium because you literally can't get hard currency out of Bitfinex for the foreseeable future. It's a hyped number to pretend this stuff is worth more than it is and attract attention.
- Jenya_ 9y ago
  GDAX example is not a good one. They started up trades after the maintenance shutdown and they did it incorrectly. They allowed market trades before order book had a chance to fill up.
  - davidgerard 9y ago
    My point was how thin the order book turned out to be. This is why the Bitcoin price is so ridiculously volatile. Single trades, even on the Chinese exchanges, frequently send the price up or down tens of dollars.

95 points by serg_chernata 9y ago

Lots of people are seeing these ICOs as easy money. It is unbelievable how many people will invest their money (mostly bitcoin gains) into unproven teams without a product and barely a white paper. Unhappy investors from events like this may draw more attention of the SEC or CTFC.

RexetBlell 9y ago
It's not mostly Bitcoin gains. Lately people are buying over 100,000,000 USD worth of Ether per day with mostly fiat (and not Bitcoin) in order to invest in these ICOs.
- frakr 9y ago
  Do you have a source for that statistic?
  - beaner 9y ago
    https://exchangewar.info/coinprice?eth_usd https://exchangewar.info/coinprice?eth_usd
  - RexetBlell 9y ago
    https://coinmarketcap.com/currencies/ethereum/#markets https://coinmarketcap.com/currencies/ethereum/#markets

Kinnard 9y ago

Spanish Price Revolution: https://en.wikipedia.org/wiki/Spanish_Price_Revolution https://en.wikipedia.org/wiki/Spanish_Price_Revolution

highd 9y ago

Are these valuations really that outrageous compared to startups? Yes they're really early, but the ETH platform is a huge force multiplier in terms of decentralized scaling engineering that you don't have to do, not to mention the intrinsic benefits it has. If you think in terms of valuing based on how far a project has gone it seems crazy, but if you think in terms of valuing based on how far away it is, that actually lines up reasonably in my mind. $100M for a decent shot at eating a big chunk of a $10-100B industry in 2-3 years? I've seen crazier things in SV. Obviously a lot of these are scams, but there's some good ones, and I mostly agree with which ones the market has picked.

zherbert 9y ago
This blog post isnt making arguments about established tokens like Ethereum. Rather, it is criticizing the outrageous valuation of some tokens, like Gnosis, that have not even released a product yet but are valued at over $300m.
- highd 9y ago
  Yeah, as am I. GNO, AUG and Golem all have some pretty compelling upside. EDIT: Also remember that these ICOs are not equity, they're generally pre-orders for functionality on the system. So it's sort of like comparing revenue vs profit.
  - Taek 9y ago
    In the case of GNO, we're talking a "pre-order" where less than 4.2% of the product was sold, with the dev team retaining the remaining 95.8% at a current valuation of about $900M. These assets can be sold at any time at market price (bringing the price down and diluting the market, but that's a risk I'm betting most GNO holders don't see.) And when we are talking about pre-selling functionality, we aren't talking about pre-selling a fixed amount of functionality. It's a speculative amount of functionality where you may be able to bet on a prediction market to the tune of $100, or you may be able to bet to the tune of $10,000, and you don't know until you see how successful the platform is. Your expected return curve there is very closely related to the expected return if you held equity, except a lot worse because you don't even have a claim to any non-Gnosis products that the team builds.

crypt1d 9y ago

I've been following Siacoin development very closely for the last couple of months. Their devs seem like one of the few remaining people in crypto that actually care about developing a working product/coin, vs just abusing the unregulated market and getting filthy rich. Kudos to the team for getting on the front page of HN. I'm sure this will raise awareness of their product at least a little bit. Just looking at the coin itself, looks like it jumped 10 points since this blog appeared.

placeybordeaux 9y ago
For those that aren't following it seems that siacoin is looking to provide an efficient distributed storage network made up of individuals that offer a contact to store data. To offer the contract the host puts up collateral that will be given to the renter if the host fails to provide a proof of storage (my guess before reading the paper is that the contract gives a hash and a file size and the host is responsible for giving a file of that size and that hash if there is a dispute). Seems cool. I have an always on computer & ~100 GB free, I might experiment with running a node.
- nemo1618 9y ago
  >my guess before reading the paper is that the contract gives a hash and a file size and the host is responsible for giving a file of that size and that hash if there is a dispute Close! Sia uses Merkle trees to construct the storage proof. The storage contract specifies the Merkle tree root hash. The host must then provide one of the "leaves" of the tree (64 bytes of actual data), along with the other subtree roots in the tree necessary to construct the root hash. The consensus algorithm can then verify that by hashing the leaf and combining it with the other subtree roots, the top-level root can be obtained. This is a lot more compact and efficient than sending the entire file contents. The only trick is selecting which leaf to demand from the host -- if it could be predicted in advance, the host could cheat and store less data. But it can't be purely random either, since all nodes on the network need to pick the same leaf to arrive at consensus. So the leaf is chosen using existing entropy in the blockchain (e.g. the hash of the last block), so that it's both deterministic and difficult for an attacker to control.

draw_down 9y ago

Sorry, what is this about? The first 2-3 paragraphs are almost incomprehensible.

fragsworth 9y ago
The context is tradeable tokens that are built on top of cryptocurrency platforms like Ethereum.
- soVeryTired 9y ago
  So nonsense squared, then.
  - gibybo 9y ago
    There is $30+ billion currently invested in cryptocurrencies. While the masses may still not know very much about it, I think we're beyond the point where any individual educated in how they work can reasonably call it nonsense.
    - 467568985476 9y ago
      For those of us not familiar with this particular financial product (is that even the right term?), could you elaborate on the $30+ billion dollar figure? How do you arrive at that number?
      - gibybo 9y ago
        My figure was from http://coinmarketcap.com/ http://coinmarketcap.com/ (look at the top) I rounded down a bit to compensate for some of the lower volume cryptocurrencies and any potential issues with market cap that it might not be reporting correctly. You can get to $30 billion just by taking the current total number of Bitcoin + Ether outstanding and multiplying by their respective token prices. Admittedly both numbers are inflated some amount due to tokens being unknowingly lost/destroyed, but I think we're still in the ballpark of $30B. There is also a few hundred million (possibly low single digit billions) of venture capital in startups based on cryptocurrencies.

aml183 9y ago

There is not a bubble. Gnosis value has been cut to $100MM. The markets are working efficiently and punishing ICOs on valuation. Many ICOs have failed and not raised money. The market is focusing on these mega projects and not looking at the whole picture.

Taek 9y ago
This comment proves the entire point of the post. The Gnosis token is currently trading at more than 3x what it sold for during the pre-sale. It has gained in value A LOT, and people don't even realize that Gnosis is a success story. The price hasn't been cut at all. The originally advertised $300M valuation included the dev tokens. The $100M you reference does not. To compare to the dev tokens, check this chart (putting the current full valuation at $960M): http://coinmarketcap.com/assets/views/market-cap-by-total-supply/ http://coinmarketcap.com/assets/views/market-cap-by-total-su...
- aml183 9y ago
  I apologize. You are right. I don't think Gnosis is healthy for the market. The incentives of the ICO were very misaligned. However, I still think the team is very strong and the potential is there. The market roots out companies that aren't up to snuff. Once you go below the top 20 crypto assets, the market starts dropping off fast.
brilliantcode 9y ago
It's absolutely a bubble very much like the HYIP forums from the early 2000s.
gibybo 9y ago
It hasn't been cut to $100 million, the current market cap using the total supply (which is absolutely the number that should be used) is $958 million. Coinmarketcap (and others) is falsely claiming it to be $105 million, and that's dangerous.

deleted 9y ago

[deleted]

gibybo 9y ago

Is there a reasonably safe/reliable/cheap way to short Gnosis? I'm guessing not, because there's a pretty easy $10-20 million to be made here and some hedge fund probably would have done it already if possible. I wonder if a smart contract could be created on Ethereum to securely borrow Gnosis. Perhaps with Eth as collateral. Anyone with experience building Ethereum contracts care to enlighten me?

samlewis 9y ago
You can margin trade on exchanges like Poloniex right now. Whether or not it's a bright idea is another matter. Even if you assume that it's presently overvalued, how can you know when (or even if) the bubble will pop?
- gibybo 9y ago
  Well that's always the risk with shorting I suppose, I just meant as safe as shorting can reasonably be :) Thanks for the Poloniex tip though, looking into it now!
davidgerard 9y ago
"Shorting" turns out to be a complicated construct that needs a lot of regulatory pieces in place. The exchanges are largely unregulated, and have a track record of messing people around when a price changes quickly. Bitfinex is big on offering complicated margin trades that nobody else does ... but you can't get actual money out at the moment.

gwbas1c 9y ago

I keep smelling "pump and dump" when it comes to cryptocurrency. Perhaps when the bubble bursts the honest people will be able to get to work developing something worthwhile?

bsder 9y ago
Traceability and reversibility are features of our current monetary system that most users really like. The only users who don't like those features generally don't want to have to cough up their ill-gotten gains when they get caught.

RichardHeart 9y ago

Enterprise value is better than market cap. Market cap doesn't accurately reflect currencies, which is why they have M numbers like M2. The point in this article is that, currently outstanding currency tokens relationship to future inflated outstanding tokens is wildly different between currencies, and not accounted for in the "market cap" measurement. Thus, what many should be looking at, and aren't, is the known future inflation of the particular system. When you understand that you're going to be diluted, your current tokens ecosystem price should reflect that knowledge. Their suggestion for better understanding what the "value" of a cryptotoken should be understood as is good.

runeks 9y ago

If you want your token to be used as money, the only relevant metric is liquidity: how many USD/EUR/etc. are deposited into exchanges, bidding on/selling for the token in question right now? To prove my point, imagine I have created a crypto currency with 2^128 currency units, and I sell you one currency unit for a thousandth of a cent. Result: my crypto currency is now the "biggest" in the world, with a market cap of ~10^35 USD.

davidgerard 9y ago

"Market cap" is a basically ridiculous measure to use of crypto assets. It implies a realisability of price that really just isn't there. Trading is too thin and the price is too volatile, even for the most-traded one, Bitcoin. Consider the recent Bitcoin flash crash on GDAX, where BTC dropped from $1184 to 6 cents - this was courtesy about 100 BTC of trades. Then there's the Bitcoin "price", which is a weighted average ... including exchanges like Bitfinex, where the USD "price" includes a huge premium because you literally can't get hard currency out of Bitfinex for the foreseeable future. It's a hyped number to pretend this stuff is worth more than it is and attract attention.

Jenya_ 9y ago
GDAX example is not a good one. They started up trades after the maintenance shutdown and they did it incorrectly. They allowed market trades before order book had a chance to fill up.
- davidgerard 9y ago
  My point was how thin the order book turned out to be. This is why the Bitcoin price is so ridiculously volatile. Single trades, even on the Chinese exchanges, frequently send the price up or down tens of dollars.