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The problem is the use of market cap as a valuation metric. It is absurd to think that your joke cryptocurrency is actually worth $2B just because one person wa

The problem is the use of market cap as a valuation metric. It is absurd to think that your joke cryptocurrency is actually worth $2B just because one person was willing to trade at a price that implies $2B. To show the absurdity, consider the people who buy used cooking oil from restaurants to turn into biodiesel for their modified 1975 mercedes 300D. They might pay $2/gallon for that used cooking oil. Would it be reasonable to assume that the market size of used cooking oil is now $2 * (Gallons of used cooking oil produced yearly)? No, that's absurd. Someone paid a high price for it, that doesn't mean everybody did or will.

josu 9y ago
As of now Dogecoin has a 24hour volume of 58M US dollars. This is not just one person, this is a market consensus on the value of each coin.
- saosebastiao 9y ago
  And what if 90% of that market consensus is really just 10 different high frequency traders battling for top market making position, with the occasional humdrum buying to "diversify"? The market depth says a lot more about a currency's value than the market price or even volume does. It's not something that can be summed up into a tidy single number, though. Which means people don't talk about it when when writing glorified blog posts.
  - sharemywin 9y ago
    https://bitinfocharts.com/top-100-richest-dogecoin-addresses.html https://bitinfocharts.com/top-100-richest-dogecoin-addresses...
    - gruez 9y ago
      how's that useful? a wallet can have multiple addresses, and an address can belong to multiple wallets (on web wallets or exchange accounts).
  - wellboy 9y ago
    This would imply that all cryptos are handled by 10 bots, which isn't the case. Coinbase added 1 million users in June last year, and that's just one exchange, so think if crypto owners approximating 100 million people. They sure also buy cryptos, not only bots.
JumpCrisscross 9y ago
> The problem is the use of market cap as a valuation metric The currency analog to market cap is money supply [1]. It's a specialized term with less general utility than market cap for equities. Market cap is a useful statistic because when it comes to shares, the whole is worth more than the sum of its parts. If you buy every share of Apple stock outstanding, you own a business throwing off $60 billion a year [2]. If you buy every Bitcoin in existence, you have nothing of value. That said, the quoting of crypto market caps is a symptom. Nobody knows what these things are useful for. Dimensionalising the price is better than simply quoting a number. But you can't measure what you haven't defined. [1] https://en.wikipedia.org/wiki/Money_supply https://en.wikipedia.org/wiki/Money_supply [2] https://finance.google.com/finance?q=NASDAQ%3AAAPL&fstype=ii&ei=_upYWsmgF5bCe-33j8AO https://finance.google.com/finance?q=NASDAQ%3AAAPL&fstype=ii...
- saosebastiao 9y ago
  No, money supply is a pure count. Money supply is not quoted in terms of trade, it exists purely outside of market behavior. Market cap requires a trade market in order for it to be calculated. It is money supply x last trade price. That's why you quote a cryptocurrency's market cap in some other currency, whereas a market cap is quoted in terms of itself.
  - JumpCrisscross 9y ago
    > Money supply is not quoted in terms of trade, it exists purely outside of market behavior FX traders absolutely look at money supply, amongst other things, re-priced into hard currency when considering e.g. foreign-currency debt burdens; local rates, inflation and borrowing conditions; and the monetary policy relative to the internal and export-oriented economy. It's a specialist metric, though.
    - saosebastiao 9y ago
      The money supply isn't the currency's value. Of course it is a factor in what traders are willing to pay to acquire it...but weather can be as well. Do you conflate the trade balance with the value of a currency too? Market cap is money supply * last trade price. It mathematically can't be analog to money supply, any more than density can be analog to mass.

josu 9y ago

As of now Dogecoin has a 24hour volume of 58M US dollars. This is not just one person, this is a market consensus on the value of each coin.

saosebastiao 9y ago
And what if 90% of that market consensus is really just 10 different high frequency traders battling for top market making position, with the occasional humdrum buying to "diversify"? The market depth says a lot more about a currency's value than the market price or even volume does. It's not something that can be summed up into a tidy single number, though. Which means people don't talk about it when when writing glorified blog posts.
- sharemywin 9y ago
  https://bitinfocharts.com/top-100-richest-dogecoin-addresses.html https://bitinfocharts.com/top-100-richest-dogecoin-addresses...
  - gruez 9y ago
    how's that useful? a wallet can have multiple addresses, and an address can belong to multiple wallets (on web wallets or exchange accounts).
- wellboy 9y ago
  This would imply that all cryptos are handled by 10 bots, which isn't the case. Coinbase added 1 million users in June last year, and that's just one exchange, so think if crypto owners approximating 100 million people. They sure also buy cryptos, not only bots.

JumpCrisscross 9y ago

> The problem is the use of market cap as a valuation metric The currency analog to market cap is money supply [1]. It's a specialized term with less general utility than market cap for equities. Market cap is a useful statistic because when it comes to shares, the whole is worth more than the sum of its parts. If you buy every share of Apple stock outstanding, you own a business throwing off $60 billion a year [2]. If you buy every Bitcoin in existence, you have nothing of value. That said, the quoting of crypto market caps is a symptom. Nobody knows what these things are useful for. Dimensionalising the price is better than simply quoting a number. But you can't measure what you haven't defined. [1] https://en.wikipedia.org/wiki/Money_supply https://en.wikipedia.org/wiki/Money_supply [2] https://finance.google.com/finance?q=NASDAQ%3AAAPL&fstype=ii&ei=_upYWsmgF5bCe-33j8AO https://finance.google.com/finance?q=NASDAQ%3AAAPL&fstype=ii...

saosebastiao 9y ago
No, money supply is a pure count. Money supply is not quoted in terms of trade, it exists purely outside of market behavior. Market cap requires a trade market in order for it to be calculated. It is money supply x last trade price. That's why you quote a cryptocurrency's market cap in some other currency, whereas a market cap is quoted in terms of itself.
- JumpCrisscross 9y ago
  > Money supply is not quoted in terms of trade, it exists purely outside of market behavior FX traders absolutely look at money supply, amongst other things, re-priced into hard currency when considering e.g. foreign-currency debt burdens; local rates, inflation and borrowing conditions; and the monetary policy relative to the internal and export-oriented economy. It's a specialist metric, though.
  - saosebastiao 9y ago
    The money supply isn't the currency's value. Of course it is a factor in what traders are willing to pay to acquire it...but weather can be as well. Do you conflate the trade balance with the value of a currency too? Market cap is money supply * last trade price. It mathematically can't be analog to money supply, any more than density can be analog to mass.