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How this works: You have 1 billion coins. You sell 100 coins to someone for $100. Now you have nearly a billion dollars (market cap). But, do you really? Actual
by aetherspawn 5y ago
How this works:
You have 1 billion coins.
You sell 100 coins to someone for $100.
Now you have nearly a billion dollars (market cap). But, do you really? Actually, you don't. Not if nobody is willing to pay you for the rest of the coins. The market cap is a bad estimate when the actual liquidity is small ($100). When you try and sell the rest of the coins, the market cap bubble will normalize.
- vmception 5y agoyes, but that's not quite what happened here. If I post a more comprehensive comment I'll link you. edit, the more comprehensive comment: https://news.ycombinator.com/item?id=26968635 https://news.ycombinator.com/item?id=26968635
- TheAdamist 5y agoThere's a $100 million dollar deli in new Jersey running this playbook. Been in the news recently. And due to news articles people have been buying? Everything seems to be a pump and dump but get out before everyone else does i guess.
- TheAdamAndChe 5y agoThis is called speculative investing(gambling) and happens in frothy markets. Such speculation occurs in bubbles, and they pop eventually. Its like a game of musical chairs: someone will be left out and hurt by it.
- 542458 5y agoThe deli had been running this playbook (low volumes giving an inflated cap). But since it got famous? Volumes are actually decent, and the price is still ridiculous. People are apparently deliberately buying into a market failure/scam/whatever-it-is.
- zzbzq 5y agoIt's the same with cryptocurrency, Tesla stock, Gamestop. The market-cap bubbles become a self-justifying cycle. Theoretically everything comes back down to earth, but only when it runs out of fuel. But the fuel is human insanity, which may be unlimited.
- jcpham2 5y agoThe market can remain irrational longer than you or I can stay solvent
- MomoXenosaga 5y agoNot sure about unlimited. Crashes do happen. Predicting those is the holy grail.
- camjohnson26 5y ago“Fraud creates alpha”
- skizm 5y agoAbout that deli, it's actually not $100 million any more... https://www.bloomberg.com/opinion/articles/2021-04-20/hometown-international-new-jersey-deli-is-actually-worth-2-billion https://www.bloomberg.com/opinion/articles/2021-04-20/hometo...
- jbverschoor 5y ago37SIGNALS VALUATION TOPS $100 BILLION AFTER BOLD VC INVESTMENT https://signalvnoise.com/posts/1941-press-release-37signals-valuation-tops-100-billion-after-bold-vc-investment https://signalvnoise.com/posts/1941-press-release-37signals-...
- iancmceachern 5y agoWhat's is at now?
- Tenoke 5y agoMarket cap is still useful to compare projects but you do have to look at it in combination with liquidity. E.g. I work on a Cross-chain bridge project (currently for BSC-Polygon) [0] and technically we have a market cap of 1.4m right now but practically the liquidity in exchanges is still just in the thousands so that's all you can cash out if you try to. On the other hand, comparing e.g. ETH and BTC's market cap is a lot more useful since they have a lot of and comparable enough liquidity. 0. https://wpnt.org/ https://wpnt.org/
- wolfretcrap 5y agoSome people don't only look at market cap, they look at trade volume which again can be faked using wash trading.
- Waterluvian 5y agoReminds me of the books as a kid that told you what each hockey card was worth. In reality they probably count on most people not circulating them.
- wpietri 5y agoExactly. The whole concept of "market cap" for commodities and currencies is ridiculous. As a refresher for folks, the term comes from stocks. For example, the Nuance stock was trading at $43.58 on April 9. Multiply that times the number of shares and you get about $13 billion. That's the market capitalization. This is a meaningful number because if another company wants to buy it, they'll have to pay at least that much. And indeed, when Microsoft bought it, they paid $19.7 billion. [1] But commodities and currencies don't work that way. If you want to buy a little gold, you pay $57k/kilo. But if you want to buy all the gold? There's not enough money in the world. If you discover a mountain of gold, can you sell at that price? No way. In both cases, the price is a balance point between supply and demand at the moment. If you change supply or demand, you get big price swings. You can calculate "market cap" for USD or gold, but it's not a meaningful number. That's even more true for cryptocurrencies. Dollars and gold at least flow freely. But supply of cryptocurrencies are, as this article shows, totally arbitrary. And demand, both actual and apparent, is heavily manipulated. Using the term "market cap" is just another way to make raw speculation look like investment. [1] https://www.forbes.com/sites/joecornell/2021/04/20/microsoft-announces-acquisition-of-nuance-targets-completion-in-2021/?sh=30da2ab35bbe https://www.forbes.com/sites/joecornell/2021/04/20/microsoft...
- nightski 5y agoJust because you can't hoard the entire market cap doesn't mean it is ridiculous or not a useful measure. If you have a very liquid currency or commodity then it is very useful.
- SamBam 5y agoBut "very liquid" is relative to the amount of the entire commodity you could theoretically sell. Stocks are "very liquid" because, outside of some share classes, you could theoretically buy nearly all the stocks. Even more importantly, you could almost always sell your entire portfolio in a single day if you wanted to, for the vast majority of stocks. BitCoin, is that "very liquid?" There are thousands of trades every day, but what would actually happen if someone tried to unload "all" of the coins? If Satoshi popped up and tried to sell their coins, which are nominally worth over $8 billion, could they do it? Almost certainly not.
- devoutsalsa 5y agoEconomics Explained talked about something similar w/ art. [1] - Buy N paintings form one artist for $1 million USD a piece. - Put 1 painting up for auction. - Have coconspirators bid the painting up to say $20 million. - Buy your own painting for $20 million, and imply that your other paintings by the same artist are also worth $20 million. - Donate a "$20 million" painting to an art museum (that maybe you control) & save $10 million in taxes. - Complain about tax hikes on the rich as the not-rich subsidize your art collection [1] The Economics Of The Art Market: Why This Painting Isn't Worth $450 Million -- https://youtu.be/V5sOuET8UWA https://youtu.be/V5sOuET8UWA
- delaaxe 5y agoThat was insightful
- ludamad 5y agoYou still have to take a capital gain on $1 million -> $20 million when selling it, right? I suppose the charitable offset is much better?
- devoutsalsa 5y agoNope. You don't sell it. You donate it. It's considered a charitable contribution, not a sale, and that makes it 100% tax deductible. [1] I guess you'd have to spend $20 million on the painting, but you're buying it from yourself, so in reality you're only on the hook for the 2% fee from the auction house. [1] https://www.usa.gov/donate-to-charity#item-211605 https://www.usa.gov/donate-to-charity#item-211605
- nightski 5y agoBefore that though, when you bought your own painting for $20M. I'd imagine it would be pretty difficult to write off that purchase as a business expense or something. The IRS is going to notice a $20M write-off for a business with no additional income pretty quick. But you will have to pay taxes on the $20M income, even if it is coming from yourself.
- javajosh 5y agoIndeed. If you start a religion, and get a single person to join it, you can (truthfully!) claim you've doubled the size of your congregation! The reason this scammy verbiage works is because it violates "linguistic norms". Congregations are "large" things in peoples minds, so when you claim to double it, the image that comes to mind is adding a substantial number. By violating these norms, you can lie without lying. It's a neat trick, the use of which has been mastered by the legal profession. But the technique clearly has wider applications, sadly.
- dfilppi 5y agoThis technique is the basis for politics
- javajosh 5y agoThere is a reason why virtually 100% of Congress are lawyers. (Not sure where to look up the stats on that, though.) Edit: I was wrong. It's "only" ~50% of Congress, assuming the numbers are roughly the same since 2016. source: https://www.vox.com/polyarchy/2016/6/30/12068490/too-many-lawyers-politics https://www.vox.com/polyarchy/2016/6/30/12068490/too-many-la... That's still a huge number, compared to the % of general population who are lawyers. In the US there are 1.4M lawyers; if the pop is 350M then they are 0.4% of the population - and a much smaller fraction of the adult working population (roughly .02%).
- zuminator 5y agoI was with you til the last sentence. The adult working population is about half of the total population, so approx 0.8% are lawyers, not 0.2%, and certainly not 0.02%.
- ameister14 5y ago>There is a reason why virtually 100% of Congress are lawyers. Yeah, I mean - there's a reason people that write software are mostly engineers.
- rozab 5y ago
- dr-detroit 5y agoyeah but all you have to do is unload your fake coins on a guy in the financial sector who uses the term "fugazi" unironically.
- camjohnson26 5y agoThat’s true sometimes, but Doge was incredibly liquid so its market cap was more indicative of reality. You can look at volume to see if this effect is happening for any specific coin, but I’m not seeing SCAM listed anywhere to check.
- zepto 5y agoThis is a problem with Market Cap in general even for the largest and most solid businesses like Amazon and Apple. It’s a statistic, not a measure.
- Taek 5y agoAnd yet, if you do this and then give 100 million of those tokens to your friend, your friend now owes the IRS $40 million USD. Go figure
- ceejayoz 5y ago"I didn't want them, though." "Tough shit, pay up." Is there an IRS mechanism for rejecting an un-rejectable transfer?
- jobigoud 5y agoDon't sell the tokens for fiat. The token transfer itself isn't taxable (at least in my jurisdiction it works like this).
- Taek 5y agoThis doesn't work in the US. The IRS guidance states that the moment you received the tokens, you've incurred a tax burden. Refusing to sell the tokens protects you from capital gains taxes, but capital gains taxes only applies to tokens you purchased in the first place. Tokens you were gifted counts as income.