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I’m skeptical of any reporting that refers to a crypto asset’s “market cap,” as if there was enough liquidiy somewhere in the system for all HODLrs to exit at a

I’m skeptical of any reporting that refers to a crypto asset’s “market cap,” as if there was enough liquidiy somewhere in the system for all HODLrs to exit at anywhere near that price.

samatman 8y ago
This is special pleading; there is no stock, no matter how blue chip, for which the market cap reflects the price at which all 'hodlers' could simultaneously sell their position. That's just... not how markets work, at all.
- Dylan16807 8y ago
  The idea of everyone with a stock exiting simultaneously is way too suspicious and hard to mentally model, so let's say a supermajority instead, because some event makes a big holder and some followers want to move out. Perhaps the stock was replaced in an index fund. And you made up "simultaneously", so I'm going to ignore that and say "a week or two" instead. There are thousands of major stocks that could support this with a small price movement. If any big crypto coin had supermajority (or even 10%) of the owners try to cash out, the money would dry up right away.
  - samatman 8y ago
    I suppose this could be settle empirically, though I don't know how to get the data. Can you point to examples of large stocks having a supermajority (let's call it 66%) of all stocks move in one business week, without a corresponding crash in price? Call it dropping by half. If, as I suspect, this sort of movement is both extremely uncommon and unfailingly accompanied by a deep discounting, then perhaps this balance of supply (people willing to sell) and demand (people wanting to buy) is part and parcel of what makes a commodity valuable, and valuable at a certain price? Because GP was saying that market cap should be based on a counterfactual; s/he wants it to mean something it doesn't.
  - jki275 8y ago
    Can you cite any stock that could actually support a super majority of owners dumping their stock on the market? I don't have any data on this, but it doesn't seem logical that could happen. Generally large amounts of stock hitting the market at once results in price depression.
    - billmalarky 8y ago
      Typically a premium is paid on top of the current stock price any time one company acquires another company, which is the scenario you describe. >The target company's stock usually rises because the acquiring company has to pay a premium for the acquisition. The reason for the premium is that the shareholders of the target company, who need to approve the takeover, are unlikely to approve the acquisition unless the stock price is above the prevailing market price. If the takeover bid equates to a lower stock price than the current price of the target company, there's little incentive for the current owners of the target company to sell their shares to the acquiring company. https://www.investopedia.com/ask/answers/203.asp https://www.investopedia.com/ask/answers/203.asp Granted, this isn't a scenario where majority of owners are "dumping" the stock on the open market, but rather a scenario where a buyer is snatching up a large share of the stock. So really it isn't about the amount of stock being transacted, but the reason for the transaction (sell pressure vs buy pressure).
  - sobani 8y ago
    Apple had an eventful day yesterday (dropped by 10%). Despite that, the amount of shares traded (this includes day trades) was only ~90M, on a total shares outstanding of 5000M, so less than 2%. From these figures I find it hard to imagine being able to sell 50% of all shares within two weeks on top of all the normal trades that will also keep occurring in that time. I will give you that the major stocks have more liquidity and can take a bigger selloff % wise than even Bitcoin or Ethereum.
    - Dylan16807 8y ago
      Price movement and number of shares traded are not very correlated. 2% of shares changing hands might come with a 10% price swing, or it might come with a 0% price swing. When a stock leaves the S&P 500 you can have people selling off a double digit percent of ownership, but once the process is over prices tend to be quite close to where they started. And that's despite the implication that it's a bad stock. If someone has a plausible reason to buy or sell a huge amount of stock, that isn't related to the company itself, counterparties will show up. If you offer a stock at a 10% discount for purely personal reasons, there will be many many buyers. And as billmalarky said, in a merger you can have all the shares changing hands with only a small price shift.

I’m skeptical of any reporting that refers to a crypto asset’s “market cap,” as if there was enough liquidiy somewhere in the system for all HODLrs to exit at anywhere near that price.

samatman 8y ago

This is special pleading; there is no stock, no matter how blue chip, for which the market cap reflects the price at which all 'hodlers' could simultaneously sell their position. That's just... not how markets work, at all.

Dylan16807 8y ago
The idea of everyone with a stock exiting simultaneously is way too suspicious and hard to mentally model, so let's say a supermajority instead, because some event makes a big holder and some followers want to move out. Perhaps the stock was replaced in an index fund. And you made up "simultaneously", so I'm going to ignore that and say "a week or two" instead. There are thousands of major stocks that could support this with a small price movement. If any big crypto coin had supermajority (or even 10%) of the owners try to cash out, the money would dry up right away.
- samatman 8y ago
  I suppose this could be settle empirically, though I don't know how to get the data. Can you point to examples of large stocks having a supermajority (let's call it 66%) of all stocks move in one business week, without a corresponding crash in price? Call it dropping by half. If, as I suspect, this sort of movement is both extremely uncommon and unfailingly accompanied by a deep discounting, then perhaps this balance of supply (people willing to sell) and demand (people wanting to buy) is part and parcel of what makes a commodity valuable, and valuable at a certain price? Because GP was saying that market cap should be based on a counterfactual; s/he wants it to mean something it doesn't.
- jki275 8y ago
  Can you cite any stock that could actually support a super majority of owners dumping their stock on the market? I don't have any data on this, but it doesn't seem logical that could happen. Generally large amounts of stock hitting the market at once results in price depression.
  - billmalarky 8y ago
    Typically a premium is paid on top of the current stock price any time one company acquires another company, which is the scenario you describe. >The target company's stock usually rises because the acquiring company has to pay a premium for the acquisition. The reason for the premium is that the shareholders of the target company, who need to approve the takeover, are unlikely to approve the acquisition unless the stock price is above the prevailing market price. If the takeover bid equates to a lower stock price than the current price of the target company, there's little incentive for the current owners of the target company to sell their shares to the acquiring company. https://www.investopedia.com/ask/answers/203.asp https://www.investopedia.com/ask/answers/203.asp Granted, this isn't a scenario where majority of owners are "dumping" the stock on the open market, but rather a scenario where a buyer is snatching up a large share of the stock. So really it isn't about the amount of stock being transacted, but the reason for the transaction (sell pressure vs buy pressure).
- sobani 8y ago
  Apple had an eventful day yesterday (dropped by 10%). Despite that, the amount of shares traded (this includes day trades) was only ~90M, on a total shares outstanding of 5000M, so less than 2%. From these figures I find it hard to imagine being able to sell 50% of all shares within two weeks on top of all the normal trades that will also keep occurring in that time. I will give you that the major stocks have more liquidity and can take a bigger selloff % wise than even Bitcoin or Ethereum.
  - Dylan16807 8y ago
    Price movement and number of shares traded are not very correlated. 2% of shares changing hands might come with a 10% price swing, or it might come with a 0% price swing. When a stock leaves the S&P 500 you can have people selling off a double digit percent of ownership, but once the process is over prices tend to be quite close to where they started. And that's despite the implication that it's a bad stock. If someone has a plausible reason to buy or sell a huge amount of stock, that isn't related to the company itself, counterparties will show up. If you offer a stock at a 10% discount for purely personal reasons, there will be many many buyers. And as billmalarky said, in a merger you can have all the shares changing hands with only a small price shift.