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(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 mi

(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.
    - twelve40 9y ago
      I'm not sure a neat definition of a price floor always holds in practice. Wasn't Yahoo at some point valued less than their tangible assets/stake in Alibaba?
    - baddox 9y ago
      I suspect that it’s a bad idea to make investments based on how high the cost floor of the investment is.
  - victor106 9y ago
    Cryptos imho are equal to gold not stocks
- cdoxsey 9y ago
  Investing actually achieves something. 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.
  - AznHisoka 9y ago
    1. the stock market, other than the IPO is a secondary market. You are not providing capital to the company but just paying another trader for his shares. 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.
    - hndamien 9y ago
      This isn't entirely true. If secondary market trades increase the value of the stock then the company can sell some of their stock to get more funding, or can borrow at better terms. 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.
- aorloff 9y ago
  Because of inter-exchange protocols (FIX / FAST) to share the order book, that isn't happening with bitcoin, hence the spreads (between exchanges) and associated arbitrage opportunity.
- hndamien 9y ago
  I have been invested in Bitcoin since the very early days. This bull run can be explained, in fact it was predicted by many. I'd be happy to address any questions.
  - hndamien 9y ago
    So no questions then.
- PeterisP 9y ago
  The major difference from the current equities market, as described in the fine article (the latter half of it), is that in the Bitcoin market you see common manipulative practices that are illegal and also mostly eliminated from the current equities market.
- buttcoinslol 9y ago
  Investing: http://www.macrotrends.net/1319/dow-jones-100-year-historical-chart http://www.macrotrends.net/1319/dow-jones-100-year-historica... Speculating: http://www.macrotrends.net/1333/historical-gold-prices-100-year-chart 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.
Edmond 9y ago
There is only one word suitable for describing bitcoin: scam 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-to-be-shutdown.html http://blog.codesolvent.com/2017/12/the-bitcoin-scam-needs-t...
- patrickg_zill 9y ago
  Of course the problem is that major parts of your argument apply to the Federal Reserve system also, as well as nearly all other fiat currencies such as the Euro, Pound, Yuan etc. So exchanging fiat Euros for fiat Bitcoin means what, exactly?
  - Edmond 9y ago
    No it doesn't apply to them. This is a popular argument from libertarians but unfortunately it is a purely ideological argument that has no basis in reality. The aforementioned currencies are backed by the value of their issuer's economies, those economies are real.
    - patrickg_zill 9y ago
      Establish the means by which my having a million dollars' worth of bills in my hand, can get at the value of the USA economy. 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.
      - selectodude 9y ago
        You have to pay your taxes with USD, so there's always a base demand for USD. Bitcoin has no intrinsic demand. It can go to zero because nobody needs it.
    - 9y ago
scott00 9y ago
Crypto market cap doesn't mean the same thing as the market cap of a stock, but that doesn't mean it's meaningless. It approximates the total amount of wealth currently held in the form of a particular crypto, which is interesting to know in comparison to more traditional asset classes (stocks, bonds, gold, etc) as well as to other cryptos. If you also have some knowledge or an assumption about the velocity of money in the crypto, it also gives you an indication as to the total amount of commerce that can be facilitated by the crypto at its current valuation.
- icc97 9y ago
  'approximate' is the key word as it's averaged over exchanges which is a big difference to standard market prices, as mentioned in the article: > 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.
  - baddox 9y ago
    I don’t think the “average over multiple exchanges” thing really matters that much when we’re talking about the usefulness of market cap. The reason market cap isn’t a great measure of “total value at the moment” is because there certainly aren’t enough buyers willing and able to buy all Bitcoins or all Apple shares at the current market price.
    - njarboe 9y ago
      True, but if someone tried to buy all the Bitcoins or Apples shares, the price would start to go up. Getting them all would cost more than the current market cap. This is why company buyout offers are always for more than the current market cap.
  - deleted 9y ago
    [deleted]
- 9y ago
prawn 9y ago
All the headlines I see in mainstream media talk about Bitcoin being a risk, the likelihood of it bursting at any moment, etc. I can't remember a single mainstream article I would say is mindlessly positive.
CaptainZapp 9y ago
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 always wondered about that. Especially since people (and hucksters, trying to sell their wares) refer to Bitcoins as crypto currency. 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 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.

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.
  - twelve40 9y ago
    I'm not sure a neat definition of a price floor always holds in practice. Wasn't Yahoo at some point valued less than their tangible assets/stake in Alibaba?
  - baddox 9y ago
    I suspect that it’s a bad idea to make investments based on how high the cost floor of the investment is.
- victor106 9y ago
  Cryptos imho are equal to gold not stocks
cdoxsey 9y ago
Investing actually achieves something. 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.
- AznHisoka 9y ago
  1. the stock market, other than the IPO is a secondary market. You are not providing capital to the company but just paying another trader for his shares. 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.
  - hndamien 9y ago
    This isn't entirely true. If secondary market trades increase the value of the stock then the company can sell some of their stock to get more funding, or can borrow at better terms. 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.
aorloff 9y ago
Because of inter-exchange protocols (FIX / FAST) to share the order book, that isn't happening with bitcoin, hence the spreads (between exchanges) and associated arbitrage opportunity.
hndamien 9y ago
I have been invested in Bitcoin since the very early days. This bull run can be explained, in fact it was predicted by many. I'd be happy to address any questions.
- hndamien 9y ago
  So no questions then.
PeterisP 9y ago
The major difference from the current equities market, as described in the fine article (the latter half of it), is that in the Bitcoin market you see common manipulative practices that are illegal and also mostly eliminated from the current equities market.
buttcoinslol 9y ago
Investing: http://www.macrotrends.net/1319/dow-jones-100-year-historical-chart http://www.macrotrends.net/1319/dow-jones-100-year-historica... Speculating: http://www.macrotrends.net/1333/historical-gold-prices-100-year-chart 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.

Edmond 9y ago

There is only one word suitable for describing bitcoin: scam 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-to-be-shutdown.html http://blog.codesolvent.com/2017/12/the-bitcoin-scam-needs-t...

patrickg_zill 9y ago
Of course the problem is that major parts of your argument apply to the Federal Reserve system also, as well as nearly all other fiat currencies such as the Euro, Pound, Yuan etc. So exchanging fiat Euros for fiat Bitcoin means what, exactly?
- Edmond 9y ago
  No it doesn't apply to them. This is a popular argument from libertarians but unfortunately it is a purely ideological argument that has no basis in reality. The aforementioned currencies are backed by the value of their issuer's economies, those economies are real.
  - patrickg_zill 9y ago
    Establish the means by which my having a million dollars' worth of bills in my hand, can get at the value of the USA economy. 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.
    - selectodude 9y ago
      You have to pay your taxes with USD, so there's always a base demand for USD. Bitcoin has no intrinsic demand. It can go to zero because nobody needs it.
  - 9y ago

scott00 9y ago

Crypto market cap doesn't mean the same thing as the market cap of a stock, but that doesn't mean it's meaningless. It approximates the total amount of wealth currently held in the form of a particular crypto, which is interesting to know in comparison to more traditional asset classes (stocks, bonds, gold, etc) as well as to other cryptos. If you also have some knowledge or an assumption about the velocity of money in the crypto, it also gives you an indication as to the total amount of commerce that can be facilitated by the crypto at its current valuation.

icc97 9y ago
'approximate' is the key word as it's averaged over exchanges which is a big difference to standard market prices, as mentioned in the article: > 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.
- baddox 9y ago
  I don’t think the “average over multiple exchanges” thing really matters that much when we’re talking about the usefulness of market cap. The reason market cap isn’t a great measure of “total value at the moment” is because there certainly aren’t enough buyers willing and able to buy all Bitcoins or all Apple shares at the current market price.
  - njarboe 9y ago
    True, but if someone tried to buy all the Bitcoins or Apples shares, the price would start to go up. Getting them all would cost more than the current market cap. This is why company buyout offers are always for more than the current market cap.
- deleted 9y ago
  [deleted]
9y ago

prawn 9y ago

All the headlines I see in mainstream media talk about Bitcoin being a risk, the likelihood of it bursting at any moment, etc. I can't remember a single mainstream article I would say is mindlessly positive.

CaptainZapp 9y ago

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 always wondered about that. Especially since people (and hucksters, trying to sell their wares) refer to Bitcoins as crypto currency. 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 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.