10 ms·

Don’t all of the complaints about exchange rate and market cap apply to virtually any other item that is traded? Spread exists in forex and stock markets. Marke

by baddox 9y ago

Don’t all of the complaints about exchange rate and market cap apply to virtually any other item that is traded? Spread exists in forex and stock markets. Market cap is extremely commonly cited for stock markets. 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.”

fellellor 9y ago
I'm a newbie to the world of crypto currencies. What concerned me more is the bit about "wash trades". I can accept the spread, but there is truth in the article when it comes to trading practices that probably would be largely mitigated in the presence of a regulator.
- justboxing 9y ago
  Yeah, I would be concerned about 'wash trading' too. And the Crypto trading space seems like the Wild West in int 1880s in how some crypto trading sites and exchanges are screening for this kind of illegal activities while others aren't. > 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-bitfinex-benefits-from-fraudulent-trading-8bd66be73215 https://medium.com/@bitfinexed/wash-trading-bitcoin-how-bitf...
dehrmann 9y ago
> Don’t all of the complaints about exchange rate and market cap apply to virtually any other item that is traded? > 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.
- smokeyj 9y ago
  Is it a solved issue for equities? How do you know the shares you purchased are valid?
  - adventured 9y ago
    It's solved to an extraordinarily high degree. 99.999% or greater. There are fringe cases that pop up from time to time and make headlines; the reason they make headlines, is because trillions of dollars in equities trade hands every year in the US, and such cases are very rare. 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.
    - smokeyj 9y ago
      > It's because there's an established system of trust, liability, responsibility, regulation and oversight in the network You can just admit you don’t know.
    - SilasX 9y ago
      IIRC there was the issue with fake shares of Overstock being traded: http://investors.overstock.com/phoenix.zhtml?c=131091&p=irol-lawsuits http://investors.overstock.com/phoenix.zhtml?c=131091&p=irol...
  - Pyxl101 9y ago
    Essentially, my understanding is that all the shares are held by a common trusted corporation, the Depository Trust & Clearing Corporation (DTCC), or something like it. In this way, transfers in ownership are as fast as updates to their ledger about who owns what. 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.
davidgerard 9y ago
(author here) This is targeted to the general public, who do actually need Finance 101, because they really don't know what they're getting lured into by the mindlessly positive articles and headlines in the mainstream press. Mostly written by people who don't understand either. 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.
- twelve40 9y ago
  But at the end of the day, how is it different from the current equities market? (aside from immature tools and imperfect infrastructure that is just shaping up). Stock market can tank 50% like it did in 2009 (together with the real estate market) and your average investor will be screwed just the same. Even tech and fundamental analysis gurus cannot explain the endless bull market we're on, how is getting lured into stock market with positive press today is any different than BTC? Currently both are different forms of gambling imho.
  - arcticfox 9y ago
    But the stock market - in general - has ridiculously profitable and powerful entities behind it. No matter what happens to investor confidence, ownership of Apple is going to be very valuable because they generate a ridiculous amount of profit. Cryptos, on the other hand, are entirely based on investor confidence.
    - Cakez0r 9y ago
      It's not a given that Apple will continue to generate insane profit. Apple will remain very valuable because it has tangible assets that can be sold (book value). So with a total lack of investor confidence, the price floor of Apple shares should be book value - debts. Cryptocurrencies aren't backed by tangible assets, so the price floor is 0.
DennisP 9y ago
Well he does argue that the infrastructure isn't as advanced and regulation isn't as mature. But you could say the same about equities in emerging markets.
- davidgerard 9y ago
  They're not being pitched to suburban mums and dads in the tabloids.
  - DennisP 9y ago
    Then it sounds like your argument should just be "this is too risky for more than a tiny investment unless you're very secure," which I agree with. 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.
    - kensey 9y ago
      How recently is “recently”? It seems (to me as an outside observer) that it’s gotten notably harder to get national-currency money out of exchanges in the last, say, 6 months, because (I’m guessing) as the price goes on an upward run, more people who bought low are trying to sell to realize those gains, which triggers higher transaction volume, which suddenly prompts correspondent banks to look at exactly what all this money moving around is — at which point AML/KYC processes kick in and some banks decide the relationship with the exchange is too risky. Didn’t one of the major crypto exchanges recently lose all its correspondents for awhile and then picked up a single one again?
      - DennisP 9y ago
        I resigned about a month ago. 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.
michaelbuckbee 9y ago
Here's what "thin" means in practice. Imagine two different sets of digital objects: AlphaCoins and BetaCoins - they're identical in the say way physics professors say "imagine an infinite frictionless plane". 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.
- Alex3917 9y ago
  To give a real life example, the other day I bought about $2,000 worth of a crypto asset, which caused a ~20% spike in price and raised the market cap by ~$5M. 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.
  - bognition 9y ago
    Why are you buying something that can't support multiple simultaneous buyers?
    - sillysaurus3 9y ago
      That's the best time to speculate.
    - Alex3917 9y ago
mycall 9y ago
Why does bitcoin even need market cap? Since it is a blockchain, you can calculate how much fiat/worth it currently has, by adding up all of the transactions. No?
- gizmo686 9y ago
  You can calculate how many bitcoins are theoretically in existance by simply counting the number of blocks and refferencing issuance schedule. The blockchain will not tell you what these bitcoins are worth in any other currency; nor will it tell you how many of these bitcoins are spendable by anyone (eg. did the owner loose the key).

by baddox 9y ago

fellellor 9y ago

I'm a newbie to the world of crypto currencies. What concerned me more is the bit about "wash trades". I can accept the spread, but there is truth in the article when it comes to trading practices that probably would be largely mitigated in the presence of a regulator.

justboxing 9y ago
Yeah, I would be concerned about 'wash trading' too. And the Crypto trading space seems like the Wild West in int 1880s in how some crypto trading sites and exchanges are screening for this kind of illegal activities while others aren't. > 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-bitfinex-benefits-from-fraudulent-trading-8bd66be73215 https://medium.com/@bitfinexed/wash-trading-bitcoin-how-bitf...

dehrmann 9y ago

> Don’t all of the complaints about exchange rate and market cap apply to virtually any other item that is traded? > 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.

smokeyj 9y ago
Is it a solved issue for equities? How do you know the shares you purchased are valid?
- adventured 9y ago
  It's solved to an extraordinarily high degree. 99.999% or greater. There are fringe cases that pop up from time to time and make headlines; the reason they make headlines, is because trillions of dollars in equities trade hands every year in the US, and such cases are very rare. 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.
  - smokeyj 9y ago
    > It's because there's an established system of trust, liability, responsibility, regulation and oversight in the network You can just admit you don’t know.
  - SilasX 9y ago
    IIRC there was the issue with fake shares of Overstock being traded: http://investors.overstock.com/phoenix.zhtml?c=131091&p=irol-lawsuits http://investors.overstock.com/phoenix.zhtml?c=131091&p=irol...
- Pyxl101 9y ago
  Essentially, my understanding is that all the shares are held by a common trusted corporation, the Depository Trust & Clearing Corporation (DTCC), or something like it. In this way, transfers in ownership are as fast as updates to their ledger about who owns what. 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.

davidgerard 9y ago

(author here) This is targeted to the general public, who do actually need Finance 101, because they really don't know what they're getting lured into by the mindlessly positive articles and headlines in the mainstream press. Mostly written by people who don't understand either. 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.

twelve40 9y ago
But at the end of the day, how is it different from the current equities market? (aside from immature tools and imperfect infrastructure that is just shaping up). Stock market can tank 50% like it did in 2009 (together with the real estate market) and your average investor will be screwed just the same. Even tech and fundamental analysis gurus cannot explain the endless bull market we're on, how is getting lured into stock market with positive press today is any different than BTC? Currently both are different forms of gambling imho.
- arcticfox 9y ago
  But the stock market - in general - has ridiculously profitable and powerful entities behind it. No matter what happens to investor confidence, ownership of Apple is going to be very valuable because they generate a ridiculous amount of profit. Cryptos, on the other hand, are entirely based on investor confidence.
  - Cakez0r 9y ago
    It's not a given that Apple will continue to generate insane profit. Apple will remain very valuable because it has tangible assets that can be sold (book value). So with a total lack of investor confidence, the price floor of Apple shares should be book value - debts. Cryptocurrencies aren't backed by tangible assets, so the price floor is 0.

DennisP 9y ago

Well he does argue that the infrastructure isn't as advanced and regulation isn't as mature. But you could say the same about equities in emerging markets.

davidgerard 9y ago
They're not being pitched to suburban mums and dads in the tabloids.
- DennisP 9y ago
  Then it sounds like your argument should just be "this is too risky for more than a tiny investment unless you're very secure," which I agree with. 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.
  - kensey 9y ago
    How recently is “recently”? It seems (to me as an outside observer) that it’s gotten notably harder to get national-currency money out of exchanges in the last, say, 6 months, because (I’m guessing) as the price goes on an upward run, more people who bought low are trying to sell to realize those gains, which triggers higher transaction volume, which suddenly prompts correspondent banks to look at exactly what all this money moving around is — at which point AML/KYC processes kick in and some banks decide the relationship with the exchange is too risky. Didn’t one of the major crypto exchanges recently lose all its correspondents for awhile and then picked up a single one again?
    - DennisP 9y ago
      I resigned about a month ago. 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.

michaelbuckbee 9y ago

Here's what "thin" means in practice. Imagine two different sets of digital objects: AlphaCoins and BetaCoins - they're identical in the say way physics professors say "imagine an infinite frictionless plane". 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.

Alex3917 9y ago
To give a real life example, the other day I bought about $2,000 worth of a crypto asset, which caused a ~20% spike in price and raised the market cap by ~$5M. 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.
- bognition 9y ago
  Why are you buying something that can't support multiple simultaneous buyers?
  - sillysaurus3 9y ago
    That's the best time to speculate.
  - Alex3917 9y ago

mycall 9y ago

Why does bitcoin even need market cap? Since it is a blockchain, you can calculate how much fiat/worth it currently has, by adding up all of the transactions. No?

gizmo686 9y ago
You can calculate how many bitcoins are theoretically in existance by simply counting the number of blocks and refferencing issuance schedule. The blockchain will not tell you what these bitcoins are worth in any other currency; nor will it tell you how many of these bitcoins are spendable by anyone (eg. did the owner loose the key).