4 ms·

The same way ${price of stock} * ${total supply of stocks} = ${market cap}

lordCarbonFiber 9y ago
The classical wisdom is ${price of stock} is at least somewhat correlated with ${price of company assets} + some speculative modifier for future performance. The cryptocoins only have the latter.
- hnarn 9y ago
  That's because cryptocoins are currency and stocks are parts of any kind of enterprise that does something to add value to the material world around us. People seem to have a hard time understanding the difference between "The US Dollar" and "The Kraft Heinz Company".
- jerf 9y ago
  We can also see there is a real sense in which market cap matters. There are many cases where companies acquire other companies that are publicly traded in one shot. When that happens, the offer is generally somewhere in the ballpark of the market cap. If someone wanted to acquire "all BitCoin", there isn't an equivalent way to use the "market cap" of BitCoin to mean anything. (If you want to observe that value is thus still relative and that the people making the offer are themselves influenced by the market cap, go nuts. However, if you intend "valuations are relative anyhow" as a selective attack on the realness of stock market caps but then "accidentally" forget to apply the same logic to cryptocurrency market caps, I'll pass.)
- jo909 9y ago
  I don't think there is much wisdom in factoring in the price of company assets in its stock price. That's just obvious. That's like selling your car vs selling your car with 10.000 dollars in the trunk. Obviously it affects what I'm willing to pay. But the important question is still the worth of the car - which is very complicated to determine objectively and with f.e. classic cars nearly pure speculation.
JumpCrisscross 9y ago
The theoretical basis for that metric, with stocks, is the whole being worth at least as much as the sum of its parts. That is, a buyer of every last share of Apple stock lands up owning a company throwing off $60+ billion a year [1]. A buyer of every last Bitcoin ends up with nothing. I can't think of a non-currency asset that shares this property. For currencies, measuring the size of the monetary base can be meaningful. But it's not as meaningful as market capitalization is to individual equity securities. Epistemologically, we cannot choose good summary metrics for Bitcoin until we know what it's useful for. [1] https://www.sec.gov/Archives/edgar/data/320193/000032019317000070/a10-k20179302017.htm https://www.sec.gov/Archives/edgar/data/320193/0000320193170...
- FabHK 9y ago
  A crucial difference, and your hypothetical captures it very nicely. With Apple, the price reflects future income potential. Thus, if holders of Apple shares sell 10% of the outstanding stock, that should not affect the price much, in theory, except to the extent that it reveals new information about the firm. Sure, the price will drop, but if it drops much, investors will come in and pick up the cheap shares. With BTC, the value comes solely from the value people assign to it (unlike Apple!), and when people sell it, that is ipso facto evidence that it's less valuable (unlike Apple). Thus, if holders of BTC sell 10% of the outstanding coins, there's really not much to support the price (except maybe painting the tape and freshly printed tethers), and it could conceivably collapse completely. > I can't think of a non-currency asset that shares this property. Good point. I was thinking of gold, but surely if someone purchases all the world's gold, it'll be worth quite a lot, because it does have intrinsic uses. With BTC, people could trivially switch to any fork.
- jo909 9y ago
  But I think it is also clear that the theoretical buyer of every last share of Apple stock does not end up with a company "worth" $900 billion (it's current market cap). That metric and measurement of value just vanishes if there is no market any more. How you measure its "worth" from now on is completely arbitrary and debatable. Say he owns them all and then starts an auction for one share every day. Could you still take the price of that one share per day to determine a total value of the company? That is not in opposition of your argument. (Crypto)currencies are vastly different to stock in an established and profitable company. But also f.e. Uber stock is very different from Apple stock.

The classical wisdom is ${price of stock} is at least somewhat correlated with ${price of company assets} + some speculative modifier for future performance. The cryptocoins only have the latter.

hnarn 9y ago
That's because cryptocoins are currency and stocks are parts of any kind of enterprise that does something to add value to the material world around us. People seem to have a hard time understanding the difference between "The US Dollar" and "The Kraft Heinz Company".
jerf 9y ago
We can also see there is a real sense in which market cap matters. There are many cases where companies acquire other companies that are publicly traded in one shot. When that happens, the offer is generally somewhere in the ballpark of the market cap. If someone wanted to acquire "all BitCoin", there isn't an equivalent way to use the "market cap" of BitCoin to mean anything. (If you want to observe that value is thus still relative and that the people making the offer are themselves influenced by the market cap, go nuts. However, if you intend "valuations are relative anyhow" as a selective attack on the realness of stock market caps but then "accidentally" forget to apply the same logic to cryptocurrency market caps, I'll pass.)
jo909 9y ago
I don't think there is much wisdom in factoring in the price of company assets in its stock price. That's just obvious. That's like selling your car vs selling your car with 10.000 dollars in the trunk. Obviously it affects what I'm willing to pay. But the important question is still the worth of the car - which is very complicated to determine objectively and with f.e. classic cars nearly pure speculation.

JumpCrisscross 9y ago

The theoretical basis for that metric, with stocks, is the whole being worth at least as much as the sum of its parts. That is, a buyer of every last share of Apple stock lands up owning a company throwing off $60+ billion a year [1]. A buyer of every last Bitcoin ends up with nothing. I can't think of a non-currency asset that shares this property. For currencies, measuring the size of the monetary base can be meaningful. But it's not as meaningful as market capitalization is to individual equity securities. Epistemologically, we cannot choose good summary metrics for Bitcoin until we know what it's useful for. [1] https://www.sec.gov/Archives/edgar/data/320193/000032019317000070/a10-k20179302017.htm https://www.sec.gov/Archives/edgar/data/320193/0000320193170...

FabHK 9y ago
A crucial difference, and your hypothetical captures it very nicely. With Apple, the price reflects future income potential. Thus, if holders of Apple shares sell 10% of the outstanding stock, that should not affect the price much, in theory, except to the extent that it reveals new information about the firm. Sure, the price will drop, but if it drops much, investors will come in and pick up the cheap shares. With BTC, the value comes solely from the value people assign to it (unlike Apple!), and when people sell it, that is ipso facto evidence that it's less valuable (unlike Apple). Thus, if holders of BTC sell 10% of the outstanding coins, there's really not much to support the price (except maybe painting the tape and freshly printed tethers), and it could conceivably collapse completely. > I can't think of a non-currency asset that shares this property. Good point. I was thinking of gold, but surely if someone purchases all the world's gold, it'll be worth quite a lot, because it does have intrinsic uses. With BTC, people could trivially switch to any fork.
jo909 9y ago
But I think it is also clear that the theoretical buyer of every last share of Apple stock does not end up with a company "worth" $900 billion (it's current market cap). That metric and measurement of value just vanishes if there is no market any more. How you measure its "worth" from now on is completely arbitrary and debatable. Say he owns them all and then starts an auction for one share every day. Could you still take the price of that one share per day to determine a total value of the company? That is not in opposition of your argument. (Crypto)currencies are vastly different to stock in an established and profitable company. But also f.e. Uber stock is very different from Apple stock.