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Only using the flawed measure of market cap, which decreases in accuracy with decreases in liquidity. The problem with market cap is that it multiplies the las

by runeks 9y ago

Only using the flawed measure of market cap, which decreases in accuracy with decreases in liquidity. 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).

vasilipupkin 9y ago
but you can look at trade volume, which is also a measure of liquidity. and trade volumes for some of these alt coins are high.
- runeks 9y ago
  No, trading volume is not a measure of liquidity. It doesn’t matter how many times per second some coin — deposited at an exchange — changes owner (according to that exchange’s database) if selling $1m worth of the coin crashes the price to zero. 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.
  - 6nf 9y ago
    That trick costs a bunch of money in fees though. Volume is still a better measure than market cap. And If you don't like using the volume or market cap, what do you use?
    - runeks 9y ago
      > That trick costs a bunch of money in fees though. 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.
      - vasilipupkin 9y ago
        market depth understates liquidity dramatically because a lot of liquidity is hidden / dark. Nobody is going to show a big order in a super volatile asset.
realusername 9y ago
It's indeed a flawed comparison but marketcap is still the best we have now. If you use other metrics to mesure popularity like the number of transactions, Bitcoin is already behind Etherum.
- runeks 9y ago
  > It's indeed a flawed comparison but marketcap is still the best we have now. 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.
  - zerostar07 9y ago
    i m interested in this as i m trying to use historical data to calculate something indicative of "real invested value". do you know if there are appropriate models ?
  - snark42 9y ago
    > 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. 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.
    - runeks 9y ago
      > 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. 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 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.

by runeks 9y ago

vasilipupkin 9y ago

but you can look at trade volume, which is also a measure of liquidity. and trade volumes for some of these alt coins are high.

runeks 9y ago
No, trading volume is not a measure of liquidity. It doesn’t matter how many times per second some coin — deposited at an exchange — changes owner (according to that exchange’s database) if selling $1m worth of the coin crashes the price to zero. 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.
- 6nf 9y ago
  That trick costs a bunch of money in fees though. Volume is still a better measure than market cap. And If you don't like using the volume or market cap, what do you use?
  - runeks 9y ago
    > That trick costs a bunch of money in fees though. 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.
    - vasilipupkin 9y ago
      market depth understates liquidity dramatically because a lot of liquidity is hidden / dark. Nobody is going to show a big order in a super volatile asset.

realusername 9y ago

It's indeed a flawed comparison but marketcap is still the best we have now. If you use other metrics to mesure popularity like the number of transactions, Bitcoin is already behind Etherum.

runeks 9y ago
> It's indeed a flawed comparison but marketcap is still the best we have now. 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.
- zerostar07 9y ago
  i m interested in this as i m trying to use historical data to calculate something indicative of "real invested value". do you know if there are appropriate models ?
- snark42 9y ago
  > 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. 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.
  - runeks 9y ago
    > 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. 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 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.