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> “Most cryptocurrencies have been overvalued for a very long time,” said Samson Mow, chief strategy officer at blockchain developer Blockstream Corp. This rem

> “Most cryptocurrencies have been overvalued for a very long time,” said Samson Mow, chief strategy officer at blockchain developer Blockstream Corp. This reminds me of the "Not Even Wrong" attribute of String Theory. How can something be overvalued, if it's only value is derived from the price people are willing to pay for it?

deleted 8y ago
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raverbashing 8y ago
"its only value" It can be overvalued if the transaction volume reduces, even if it the price doesn't reduce much. Some things will sell more if the price goes down, some others won't.
Synaesthesia 8y ago
I think bitcoin only proves that financial markets can be highly irrational, a fact that has been proven repeatedly. You could say the same thing about any currency, future or derivative.
- JumpCrisscross 8y ago
  > You could say the same thing about any currency, future or derivative Not really. Derivatives have intrinsic values. There are fundamental properties that push their prices into certain equilibria. Currencies are more complicated. But between interest rates, which all modern currencies natively support, and characteristics of the underlying economy, here too one can derive boundaries. Cryptocurrencies don't have this because (a) they don't natively support rates and (b) have a poorly-defined exclusive economic base (if it exists at all). So you end up with a number that jolts around pretty much purely on animal spirits.
- Retric 8y ago
  National currencies are backed up by needing to pay taxes in them. Sell a car for bitcoin and the IRS still needs it's cash.
tCfD 8y ago
If this is Samson Mow, a well-known so called 'bitcoin maximalist', he most likely means most cryptocurrencies except Bitcoin have been overvalued. These guys always make a special exception for bitcoin when talking about the many downsides and over hyped value of cryptocurrencies.
snarf21 8y ago
You are correct but I think this perspective is simply shorthand for "A lot of (self-described) smart people think that X" and in this case X is crypto overvalued. It is also text you find mostly when people are looking back in time.
tim333 8y ago
You can actually make some sort of value arguments for some of the stuff. For example with bitcoin you can use the mining cost, or relate the value of the coins to the volume of transactions done using it. A consultancy called Quinlan did that and came up with about $1,800 as a value for bitcoin based on the current usage. http://uk.businessinsider.com/bitcoin-price-to-tank-further-says-consultancy-quinlan-2018-6 http://uk.businessinsider.com/bitcoin-price-to-tank-further-...
- Nursie 8y ago
  The mining cost shouldn't really have any bearing though - mining cost follows from market valuation, not the other way round. If the market goes up, it becomes more profitable to mine, more people start to mine, the mining cost rises to meet the new value. But there's no feedback to the market if, for instance, power prices go up and mining becomes more expensive. The least efficient miners must simply either mine at a loss, or drop off until difficulty readjusts downward and those who are left are back in profit. More expensive power wouldn't affect the market price of a bitcoin. --edit-- Because it doesn't affect the supply, the same number are created either way.
  - JumpCrisscross 8y ago
    > More expensive power wouldn't affect the market price of a bitcoin This seems intuitively wrong. Production and marginal costs are always factors. If power goes up in value, it becomes more expensive to produce new Bitcoins as well as process transactions. That would feed into prices, fees and usage. The strength of this signal might be obscured by noise, but that doesn't mean it isn't there.
    - Nursie 8y ago
      > This seems intuitively wrong. But it's still correct - there is no link there. > If power goes up in value, it becomes more expensive to produce new Bitcoins as well as process transactions. No it doesn't, because the number of bitcoins produced is a constant regardless of price, and they can only be sold at market price. If people stop mining because it costs too much, the supply to the market is entirely unaffected. The cost of power has absolutely no bearing on the transaction fees or the transaction processing capabilities of the network either. Only congestion affects transaction costs, and the transaction capacity of the network is not connected to the number of miners online or the hash rate, it is roughly constant and dependent on protocol factors. --edit-- - Replying to the child post here as I am rate limited :( > If power costs go up 10x, the cost of operating the rigs that verify transactions goes up. Miners who find processing transactions unprofitable will remove themselves from the system If those miners remove themselves, it has no bearing on the rate at which transactions can be processed or the price of a transaction. They are all trying to validate the same transactions in parallel. The network does not get more capable as you add mining capacity. > until transaction fees rise to a level that pays the bill. What mechanism would cause the fees to rise? (--edit-- last edit - I think what you're missing is that as the number of miners decreases, each miner gets a bigger share of block rewards and fees)
rjkennedy98 8y ago
Only if you think markets accurately value things, which is to say you think there aren't bubbles.
bunderbunder 8y ago
> How can something be overvalued, if it's only value is derived from the price people are willing to pay for it? Usually when someone's saying something is overvalued, what they mean is that they think there is good reason to believe that what people are willing to pay for it now is significantly more than what they think people will be willing to pay for it at some undefined point in the future. Or, in a nutshell, that they think it's a fad. I think it's generally a fairly safe bet to assume that, when there's a buying rush on something, the market price will end up being quite a bit higher than what it will be once things start to stabilize. That's a fairly intuitive implication of supply and demand, and I think the only real way around it is if there's some other force that's constantly working to push the price up. For example, the price of land tends to appreciate because the supply of land is approximately constant, but the number of people who want land is always growing. Bitcoin maybe has that with its deflationary design. But a counterweight to that feature is that nobody really needs Bitcoin for anything. So, like land, the supply is pinned, but, unlike land, it's entirely possible for demand to plummet all the way to zero.
- eof 8y ago
  By your definition, something could be both under valued and over valued at the same time.
  - bunderbunder 8y ago
    Absolutely. Take the US real estate market in 2007: You could argue that, hindsight, it was overvalued if you needed to be worried about what it would be worth 2 years later, but, 10 years later, prices were even higher. Might also be different values to different people if they have differing levels of ability to exploit it. But, in the narrow case of cryptocurrency, I'm pretty sure it's (currently) got very little value outside of its exchange rate.
- JumpCrisscross 8y ago
  > Usually when someone's saying something is overvalued, what they mean is that they think there is good reason to believe that what people are willing to pay for it now is significantly more than what they think people will be willing to pay for it at some undefined point in the future This is a mis-understanding of the term "value," at least in the context of investing. Value is the benefit you receive from holding an asset. If you buy an undervalued bond, the interest and maturity should pay you more than the price you paid for it. Same with stocks and dividends, derivatives and cash flows, et cetera. Currencies seem like an exception until you consider how FX traders make money. Currencies give you access to borrowing and lending in their respective economies. Their relative values are enforced by market factors like the carry trade. Bitcoin doesn't have this because, like gold, it does not natively support interest rates.
the_gastropod 8y ago
I think a lot of confusion stems from conflating "value" and "price". Bitcoin has no intrinsic value. To be fair, neither does a dollar (but nobody's suggesting investing in dollars is a good idea, so that's another subject). Things with intrinsic value (aka things that produce cash flow, like stocks, bonds, real estate, etc.) can be somewhat rationally priced based on their expected returns & risk profiles. Things without intrinsic value (gold, bitcoin, beanie babies, etc.) are priced primarily by speculation. BUT, gold, for example, has a built-in floor and ceiling price: since it's useful for electronics and medical purposes, its price cannot go to 0. Similarly, if the price gets high enough, mining becomes profitable, increasing supply, driving the price back down. Being a non-physical thing, Bitcoin has neither of these mechanisms, so its price can, as we've seen, flail around bounded only by investor greed.
- X6S1x6Okd1st 8y ago
  Plenty of people think investing in dollars is a good idea. Those people generally currently have a currency that is inflating faster than usd
  - anoncoward111 8y ago
    This is the correct answer. Anything that has a use to someone has intrinsic value. The price is what they offer to pay in hopes of convincing the current owner to give it to them.
- lottin 8y ago
  The notion of intrinsic value was abandoned by economists more than a hundred years ago. In modern economics, value is subjective. Market prices simply reflect the value individuals place on goods and services.
  - checkyoursudo 8y ago
    Sometimes market prices reflect the value some individuals think other individuals will place on things. Which leads back to how something can be over/under-valued.

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raverbashing 8y ago

"its only value" It can be overvalued if the transaction volume reduces, even if it the price doesn't reduce much. Some things will sell more if the price goes down, some others won't.

Synaesthesia 8y ago

I think bitcoin only proves that financial markets can be highly irrational, a fact that has been proven repeatedly. You could say the same thing about any currency, future or derivative.

JumpCrisscross 8y ago
> You could say the same thing about any currency, future or derivative Not really. Derivatives have intrinsic values. There are fundamental properties that push their prices into certain equilibria. Currencies are more complicated. But between interest rates, which all modern currencies natively support, and characteristics of the underlying economy, here too one can derive boundaries. Cryptocurrencies don't have this because (a) they don't natively support rates and (b) have a poorly-defined exclusive economic base (if it exists at all). So you end up with a number that jolts around pretty much purely on animal spirits.
Retric 8y ago
National currencies are backed up by needing to pay taxes in them. Sell a car for bitcoin and the IRS still needs it's cash.

tCfD 8y ago

If this is Samson Mow, a well-known so called 'bitcoin maximalist', he most likely means most cryptocurrencies except Bitcoin have been overvalued. These guys always make a special exception for bitcoin when talking about the many downsides and over hyped value of cryptocurrencies.

snarf21 8y ago

You are correct but I think this perspective is simply shorthand for "A lot of (self-described) smart people think that X" and in this case X is crypto overvalued. It is also text you find mostly when people are looking back in time.

tim333 8y ago

You can actually make some sort of value arguments for some of the stuff. For example with bitcoin you can use the mining cost, or relate the value of the coins to the volume of transactions done using it. A consultancy called Quinlan did that and came up with about $1,800 as a value for bitcoin based on the current usage. http://uk.businessinsider.com/bitcoin-price-to-tank-further-says-consultancy-quinlan-2018-6 http://uk.businessinsider.com/bitcoin-price-to-tank-further-...

Nursie 8y ago
The mining cost shouldn't really have any bearing though - mining cost follows from market valuation, not the other way round. If the market goes up, it becomes more profitable to mine, more people start to mine, the mining cost rises to meet the new value. But there's no feedback to the market if, for instance, power prices go up and mining becomes more expensive. The least efficient miners must simply either mine at a loss, or drop off until difficulty readjusts downward and those who are left are back in profit. More expensive power wouldn't affect the market price of a bitcoin. --edit-- Because it doesn't affect the supply, the same number are created either way.
- JumpCrisscross 8y ago
  > More expensive power wouldn't affect the market price of a bitcoin This seems intuitively wrong. Production and marginal costs are always factors. If power goes up in value, it becomes more expensive to produce new Bitcoins as well as process transactions. That would feed into prices, fees and usage. The strength of this signal might be obscured by noise, but that doesn't mean it isn't there.
  - Nursie 8y ago
    > This seems intuitively wrong. But it's still correct - there is no link there. > If power goes up in value, it becomes more expensive to produce new Bitcoins as well as process transactions. No it doesn't, because the number of bitcoins produced is a constant regardless of price, and they can only be sold at market price. If people stop mining because it costs too much, the supply to the market is entirely unaffected. The cost of power has absolutely no bearing on the transaction fees or the transaction processing capabilities of the network either. Only congestion affects transaction costs, and the transaction capacity of the network is not connected to the number of miners online or the hash rate, it is roughly constant and dependent on protocol factors. --edit-- - Replying to the child post here as I am rate limited :( > If power costs go up 10x, the cost of operating the rigs that verify transactions goes up. Miners who find processing transactions unprofitable will remove themselves from the system If those miners remove themselves, it has no bearing on the rate at which transactions can be processed or the price of a transaction. They are all trying to validate the same transactions in parallel. The network does not get more capable as you add mining capacity. > until transaction fees rise to a level that pays the bill. What mechanism would cause the fees to rise? (--edit-- last edit - I think what you're missing is that as the number of miners decreases, each miner gets a bigger share of block rewards and fees)

rjkennedy98 8y ago

Only if you think markets accurately value things, which is to say you think there aren't bubbles.

bunderbunder 8y ago

> How can something be overvalued, if it's only value is derived from the price people are willing to pay for it? Usually when someone's saying something is overvalued, what they mean is that they think there is good reason to believe that what people are willing to pay for it now is significantly more than what they think people will be willing to pay for it at some undefined point in the future. Or, in a nutshell, that they think it's a fad. I think it's generally a fairly safe bet to assume that, when there's a buying rush on something, the market price will end up being quite a bit higher than what it will be once things start to stabilize. That's a fairly intuitive implication of supply and demand, and I think the only real way around it is if there's some other force that's constantly working to push the price up. For example, the price of land tends to appreciate because the supply of land is approximately constant, but the number of people who want land is always growing. Bitcoin maybe has that with its deflationary design. But a counterweight to that feature is that nobody really needs Bitcoin for anything. So, like land, the supply is pinned, but, unlike land, it's entirely possible for demand to plummet all the way to zero.

eof 8y ago
By your definition, something could be both under valued and over valued at the same time.
- bunderbunder 8y ago
  Absolutely. Take the US real estate market in 2007: You could argue that, hindsight, it was overvalued if you needed to be worried about what it would be worth 2 years later, but, 10 years later, prices were even higher. Might also be different values to different people if they have differing levels of ability to exploit it. But, in the narrow case of cryptocurrency, I'm pretty sure it's (currently) got very little value outside of its exchange rate.
JumpCrisscross 8y ago
> Usually when someone's saying something is overvalued, what they mean is that they think there is good reason to believe that what people are willing to pay for it now is significantly more than what they think people will be willing to pay for it at some undefined point in the future This is a mis-understanding of the term "value," at least in the context of investing. Value is the benefit you receive from holding an asset. If you buy an undervalued bond, the interest and maturity should pay you more than the price you paid for it. Same with stocks and dividends, derivatives and cash flows, et cetera. Currencies seem like an exception until you consider how FX traders make money. Currencies give you access to borrowing and lending in their respective economies. Their relative values are enforced by market factors like the carry trade. Bitcoin doesn't have this because, like gold, it does not natively support interest rates.

the_gastropod 8y ago

I think a lot of confusion stems from conflating "value" and "price". Bitcoin has no intrinsic value. To be fair, neither does a dollar (but nobody's suggesting investing in dollars is a good idea, so that's another subject). Things with intrinsic value (aka things that produce cash flow, like stocks, bonds, real estate, etc.) can be somewhat rationally priced based on their expected returns & risk profiles. Things without intrinsic value (gold, bitcoin, beanie babies, etc.) are priced primarily by speculation. BUT, gold, for example, has a built-in floor and ceiling price: since it's useful for electronics and medical purposes, its price cannot go to 0. Similarly, if the price gets high enough, mining becomes profitable, increasing supply, driving the price back down. Being a non-physical thing, Bitcoin has neither of these mechanisms, so its price can, as we've seen, flail around bounded only by investor greed.

X6S1x6Okd1st 8y ago
Plenty of people think investing in dollars is a good idea. Those people generally currently have a currency that is inflating faster than usd
- anoncoward111 8y ago
  This is the correct answer. Anything that has a use to someone has intrinsic value. The price is what they offer to pay in hopes of convincing the current owner to give it to them.
lottin 8y ago
The notion of intrinsic value was abandoned by economists more than a hundred years ago. In modern economics, value is subjective. Market prices simply reflect the value individuals place on goods and services.
- checkyoursudo 8y ago
  Sometimes market prices reflect the value some individuals think other individuals will place on things. Which leads back to how something can be over/under-valued.