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Meh, I don't really get why people think "market cap" is the total valuation of something. If I sold Bob a billion XRP for 1 penny, then I sold Tim 1 XRP for $4

Meh, I don't really get why people think "market cap" is the total valuation of something. If I sold Bob a billion XRP for 1 penny, then I sold Tim 1 XRP for $40, then told Bob not to sell, and Tim can sell his for $40 (because he wants to at least get that much back), then XRP's "market cap" is worth $40 Billion, but in reality it's probably worth $40. I get that there is a lot more money in it than that, but let's be honest about something, if half the people sold Bitcoin tonight - they HAVE to get out today, it's "market cap" would likely go from nearly half-trillion to probably $300M overnight. Even though technically it should only cut in half right?

arcticbull 6y ago
There's no such thing as market cap for a currency (after all, market caps are measured as a function of currency), but nobody knows what on earth a crypto unit is supposed to be, do or mean, so it gets weird little slices of each finance category.
- boh 6y ago
  According to the SEC, XRP isn't a currency, so it does have a market cap.
  - arcticbull 6y ago
    I understand within the community that opinions vary.
LudwigNagasena 6y ago
This applies to every market cap? If every Apple stock holder would try to sell it today, the market cap would plummet.
- whatshisface 6y ago
  >If every Apple stock holder would try to sell it today, the market cap would plummet. This is often repeated but not necessarily true. I don't own a particularly large amount of Apple stock, but if the price dropped even a little bit, and if I knew the drop was due to nothing more than this weird thing where everyone was selling for some reason, I might decide to own more. If aliens sent out a mind control signal that caused every Apple shareholder to start selling, the buyers (whoever they were, maybe the aliens? ;) ) would compete with each other to buy. To give you a concrete example, let's say I am the only owner in the world of a flying car. One day, I decide to sell it. 100% of the owners of flying cars have decided to sell, but the price would clearly not drop to zero! The idea that everyone selling implies the price will drop to zero applies to pure Keynesian beauty contests where 100% of the value is in owning something perceived to be valuable. For currencies that is completely true, but for companies that is less true.
  - boh 6y ago
    > This is often repeated but not necessarily true. This is always true. It doesn't have to go to zero to qualify as plummeting.
    - whatshisface 6y ago
      I would suggest that my flying car example is one where it's not true. Another example would be intermediate industrial products: everyone who has intermediate chemicals is trying to sell them! Everyone who buys them uses them up as fast as they can, which means that at any given moment, virtually every owner of the intermediate industrial chemical is trying to sell it.
      - boh 6y ago
        The price of stocks decrease if everyone sells them. Your examples are incompatible.
        abduhl 6y ago
        Well if everyone is selling then nobody is buying and the quoted stock price remains unchanged. See how ridiculous it is to nitpick purely hypothetical situations?
        boh 6y ago
        It's not hypothetical because it happens. Stocks don't operate in low-entropy hypothetical planes of existence, they trade on markets. If your ask has no bids you lower your ask. Sellers will keep lowering it and if there's no bids it will get very near zero in which case the exchange will likely de-list the stock. A hypothetical where you sell one flying car doesn't illustrate a comparable dynamic.
  - VRay 6y ago
    That argument could be applied to anything What you're really looking for is the fact that Apple shares have an intrinsic value related to the company's assets and future cash flows. Bitcoin, on the other hand, has an intrinsic value of zero, so it could theoretically plummet all the way to zero. Same goes for some companies' stocks
- Aunche 6y ago
  Apple presumably isn't misleading investors, so its market cap is accurate. Valuations are really just numbers based on supply and demand, so if everyone wanted to sell Apple it would be worth nothing.
  - mikeyouse 6y ago
    What crypto enthusiasts miss is that owning a share of Apple grants you a right to a portion of their current cash + future profits (net of debt). A Bitcoin grants you nothing but that Bitcoin - that’s what people mean when they say stocks have “intrinsic value”. Apple will never go to zero because they have a boatload of cash and the ability to make more. If there are fewer shareholders, existing ones just get a larger portion of the profits but the market cap will never drop below the current cash - debt.
- smsm42 6y ago
  It would but unless we're talking about complete economic collapse there's a bottom to it - Apple's real estate, intellectual property, inventory, brand, etc. all cost something. Even if we completely discount all future earnings (which assumes again Apple never earns a cent - doesn't look plausible unless there's total collapse of the industry). This means there would be people that would be willing to buy at that bottom price - of course, the opinions of people at which price is the bottom would differ, but it's unlikely - again, barring full collapse of the economical system - there won't be any. With virtual coins, the bottom is literally zero. It is completely plausible that one day just nobody wants to buy $CRAPCOIN at any price. If for BTC there's probably always be some market (one has to pay the ransomware and buy drugs somehow ;) for novelty coins there's no reason to have any hard bottom, and thus no real downwards limit to "capitalization".
  - lupire 6y ago
    Unless you are making a complex hedge investment like options trading, that not interesting. For long holder, the difference between 10x upside and 1000x upside is interesting, but the difference between 0.9x downside and 1.0x downside is not, because you haven't invested literal all your wealth in the asset.
  - GoblinSlayer 6y ago
    If you can make more money from shitposting than from apple stock, it doesn't matter that it's technically not zero.
throwaway2245 6y ago
Your example is collusion/price fixing, and is very illegal. I think no matter what is being traded in most jurisdictions. https://en.wikipedia.org/wiki/Price_fixing https://en.wikipedia.org/wiki/Price_fixing If you remove the collusion, then market cap appears to me to be a fair valuation. If there is a shock to the system and everyone wants to immediately sell (despite previously wanting to hold), I would argue that to be a sudden change in the valuation.
kqvamxurcagg 6y ago
Actually this thinking is incorrect, at least for company valuations. You're discussing shares being exchanged for arbitrary random values. In a regulated market prices will always be at the marginal level where buyers and sellers exchange at the equilibrium price. Market cap is only meaningless if the participants in the market are trading at random prices, which they're not. To validate this theory, just look at M&A. Companies get bought at close to or above their market capitalisation every day of the week.
- Denvercoder9 6y ago
  Except we're not talking about companies, we're talking about currency. Companies have intrinsic value: they own assets, they produce something of value. Currency does not.
  - aplummer 6y ago
    Are you trying to tell me crypto will not deliver internet 2.0
  - lupire 6y ago
    Look at the market cap of a company in bankruptcy. Assets are a tiny fraction of a going concern's market cap. Facebook's main store of value is eyeballs, which can evaporate quickly.
  - GoblinSlayer 6y ago
    Nothing prevents you from selling a company for any price, and sometimes there's disagreement about company valuation.
- arthurcolle 6y ago
  AJRD was just bought by LMT this week for a 25% premium, as one example.
- lupire 6y ago
  People confuse acquisitions with selloffs. The reason an aquisition goes near share recent share price but a selloffs doesn't, is that an aquisition is new information that someone wants the stock, and a selloff is new information that almost no one does.
newsclues 6y ago
How can someone track cash inflows to crypto currencies?
cliftonk 6y ago
This is true for illiquid assets. XRP is a liquid asset, and you could probably move a hundred million dollars or more out of it in a matter of days. That said, it’s always seemed like a scam to me.
- bigbubba 6y ago
  Liquidity is not binary...

arcticbull 6y ago

There's no such thing as market cap for a currency (after all, market caps are measured as a function of currency), but nobody knows what on earth a crypto unit is supposed to be, do or mean, so it gets weird little slices of each finance category.

boh 6y ago
According to the SEC, XRP isn't a currency, so it does have a market cap.
- arcticbull 6y ago
  I understand within the community that opinions vary.

LudwigNagasena 6y ago

This applies to every market cap? If every Apple stock holder would try to sell it today, the market cap would plummet.

whatshisface 6y ago
>If every Apple stock holder would try to sell it today, the market cap would plummet. This is often repeated but not necessarily true. I don't own a particularly large amount of Apple stock, but if the price dropped even a little bit, and if I knew the drop was due to nothing more than this weird thing where everyone was selling for some reason, I might decide to own more. If aliens sent out a mind control signal that caused every Apple shareholder to start selling, the buyers (whoever they were, maybe the aliens? ;) ) would compete with each other to buy. To give you a concrete example, let's say I am the only owner in the world of a flying car. One day, I decide to sell it. 100% of the owners of flying cars have decided to sell, but the price would clearly not drop to zero! The idea that everyone selling implies the price will drop to zero applies to pure Keynesian beauty contests where 100% of the value is in owning something perceived to be valuable. For currencies that is completely true, but for companies that is less true.
- boh 6y ago
  > This is often repeated but not necessarily true. This is always true. It doesn't have to go to zero to qualify as plummeting.
  - whatshisface 6y ago
    I would suggest that my flying car example is one where it's not true. Another example would be intermediate industrial products: everyone who has intermediate chemicals is trying to sell them! Everyone who buys them uses them up as fast as they can, which means that at any given moment, virtually every owner of the intermediate industrial chemical is trying to sell it.
    - boh 6y ago
      The price of stocks decrease if everyone sells them. Your examples are incompatible.
      - abduhl 6y ago
        Well if everyone is selling then nobody is buying and the quoted stock price remains unchanged. See how ridiculous it is to nitpick purely hypothetical situations?
        boh 6y ago
        It's not hypothetical because it happens. Stocks don't operate in low-entropy hypothetical planes of existence, they trade on markets. If your ask has no bids you lower your ask. Sellers will keep lowering it and if there's no bids it will get very near zero in which case the exchange will likely de-list the stock. A hypothetical where you sell one flying car doesn't illustrate a comparable dynamic.
- VRay 6y ago
  That argument could be applied to anything What you're really looking for is the fact that Apple shares have an intrinsic value related to the company's assets and future cash flows. Bitcoin, on the other hand, has an intrinsic value of zero, so it could theoretically plummet all the way to zero. Same goes for some companies' stocks
Aunche 6y ago
Apple presumably isn't misleading investors, so its market cap is accurate. Valuations are really just numbers based on supply and demand, so if everyone wanted to sell Apple it would be worth nothing.
- mikeyouse 6y ago
  What crypto enthusiasts miss is that owning a share of Apple grants you a right to a portion of their current cash + future profits (net of debt). A Bitcoin grants you nothing but that Bitcoin - that’s what people mean when they say stocks have “intrinsic value”. Apple will never go to zero because they have a boatload of cash and the ability to make more. If there are fewer shareholders, existing ones just get a larger portion of the profits but the market cap will never drop below the current cash - debt.
smsm42 6y ago
It would but unless we're talking about complete economic collapse there's a bottom to it - Apple's real estate, intellectual property, inventory, brand, etc. all cost something. Even if we completely discount all future earnings (which assumes again Apple never earns a cent - doesn't look plausible unless there's total collapse of the industry). This means there would be people that would be willing to buy at that bottom price - of course, the opinions of people at which price is the bottom would differ, but it's unlikely - again, barring full collapse of the economical system - there won't be any. With virtual coins, the bottom is literally zero. It is completely plausible that one day just nobody wants to buy $CRAPCOIN at any price. If for BTC there's probably always be some market (one has to pay the ransomware and buy drugs somehow ;) for novelty coins there's no reason to have any hard bottom, and thus no real downwards limit to "capitalization".
- lupire 6y ago
  Unless you are making a complex hedge investment like options trading, that not interesting. For long holder, the difference between 10x upside and 1000x upside is interesting, but the difference between 0.9x downside and 1.0x downside is not, because you haven't invested literal all your wealth in the asset.
- GoblinSlayer 6y ago
  If you can make more money from shitposting than from apple stock, it doesn't matter that it's technically not zero.

throwaway2245 6y ago

Your example is collusion/price fixing, and is very illegal. I think no matter what is being traded in most jurisdictions. https://en.wikipedia.org/wiki/Price_fixing https://en.wikipedia.org/wiki/Price_fixing If you remove the collusion, then market cap appears to me to be a fair valuation. If there is a shock to the system and everyone wants to immediately sell (despite previously wanting to hold), I would argue that to be a sudden change in the valuation.

kqvamxurcagg 6y ago

Actually this thinking is incorrect, at least for company valuations. You're discussing shares being exchanged for arbitrary random values. In a regulated market prices will always be at the marginal level where buyers and sellers exchange at the equilibrium price. Market cap is only meaningless if the participants in the market are trading at random prices, which they're not. To validate this theory, just look at M&A. Companies get bought at close to or above their market capitalisation every day of the week.

Denvercoder9 6y ago
Except we're not talking about companies, we're talking about currency. Companies have intrinsic value: they own assets, they produce something of value. Currency does not.
- aplummer 6y ago
  Are you trying to tell me crypto will not deliver internet 2.0
- lupire 6y ago
  Look at the market cap of a company in bankruptcy. Assets are a tiny fraction of a going concern's market cap. Facebook's main store of value is eyeballs, which can evaporate quickly.
- GoblinSlayer 6y ago
  Nothing prevents you from selling a company for any price, and sometimes there's disagreement about company valuation.
arthurcolle 6y ago
AJRD was just bought by LMT this week for a 25% premium, as one example.
lupire 6y ago
People confuse acquisitions with selloffs. The reason an aquisition goes near share recent share price but a selloffs doesn't, is that an aquisition is new information that someone wants the stock, and a selloff is new information that almost no one does.

newsclues 6y ago

How can someone track cash inflows to crypto currencies?

cliftonk 6y ago

This is true for illiquid assets. XRP is a liquid asset, and you could probably move a hundred million dollars or more out of it in a matter of days. That said, it’s always seemed like a scam to me.

bigbubba 6y ago
Liquidity is not binary...