Thank you for saying so. As far as I'm concerned, it's speculation, not investment. Investment has some sort of underlying productive asset which one gets a part of and that then hopefully pays returns. Speculation is betting money on price movements.
As long as we're trying to rehabilitate financial terms, cryptocurrencies don't have "market caps". Stocks do, because they represent companies which could plausibly be purchased in one go for something near that number. But currencies and commodities don't have market caps, because buying up an entire currency a) doesn't make any sense (the value of a currency is in its continued circulation), and b) would wildly distort the price if even a fraction of the total were purchased.
In case of some of the any currency - the volume that flows through it.
If Ethereum is a go-to place to do equity crowdfunding in the future, and we estimate the volume of such operations at $120B a year, then - assuming it takes a month from the moment someone buys ETH to invest in an ETO, to the moment a startup sells it for a fiat money, Ethereum's market cap will need to be at least $10B to fulfil that need, and that would be a cap bottom then.
On top of that, there will be other uses, and of course speculation/hype factor, which you can count in as well.
Now, with the advent of stable coins, it's possible that most of the ETOs won't be funded using Eth, but a dollar derivative (e.g. MakerDAO), or a token represented by a locked-up asset (e.g. Digix). Right now MakerDAO uses Eth as a backing, so it doesn't change the math, but if the Digix model proves successful, it affect this calculations.
Another line of reasoning for Eth is that you have transaction fees, and here again you can easily calculate the money velocity, and a potential volume flowing through the system.
Finally, when PoS arrives, Eth will yield de facto dividends - that's planned to happen within a year, although it has been postponed a few times already.
For other cryptocurrencies - MakerDAO, Digix, or Ocean have economies that can be calculated in a similar way. A plenty of other ones to.
Now, if you say that there is a low chance of such projects being successful - keep in mind that all these projects aim high. If there is 1% probability that BananaCoin will really help people grow bananas, it will deserve a $100M valuation, since it will be worth $10B in case of success.
Oh oh, in case of some projects, if not most, their book to equity rate is very high by Wall Street's standards. Golem may seem overpriced with their $200M valuation (that is - you believe they either have <1% of success, or their target market cap is <$10B), until you realise they have around $100M-$150M in assets after their ICO. That's a lot of money they can spend to deliver the value.
Not really, except in a sense that's pretty close to wordplay.
Investing is about looking at the fundamental value of something, its economic productivity. Speculation is betting on fluctuation. If I put my retirement money in an index fund, I am indeed thinking about the future in a way that could be called speculative. But in the financial world, speculation has a specific meaning that is distinct from investing:
All financial instruments are speculative. The fundamental value is only ever part of the question, because fundamental value divorced from resale value would likely never pay itself off for most investments in most people's lifetimes. Even Warren Buffet speculates on price, because he takes a bet on fundamental value relative to market value.
You think cryptocurrencies are not investments because they aren't economic producers. Cryptocurrency is not an economic producer, because currency is not an economic producer. It is an economic enabler though, and currencies have intrinsic values related to their various properties that affect how they enable economies: backed by gold, backed by government trust, backed by cryptography, identity and trust in the controller of money supply, anonymity vs transparent identity, transaction speed, liquidity, legal legitimacy, etc.
The best historic analogy for the investment profile of the cryptocurrency craze right now is war bonds. With war bonds, you are investing in the success of the nation issuing them. Failure of that nation means default. Success means that bond is convertible to national currency that has a liquid marketable value. Right now the utility of those cryptocurrencies is low: transaction volumes are low, liquidity is low, acceptance is low. But by speculating on cryptocurrencies, you are betting on their future utility, with the caveat that most will likely fail and be completely worthless in the long run. Yes, it's speculative...just like every other investment out there.
Betting on any currency is speculation, not investment. And although currencies may be useful, that doesn't mean that buying more currency than you need for practical purposes is going to turn you a profit.
Indeed, the opposite often applies. A good currency has low volatilty and is easily exchanged for other things. The US dollar has been a great currency for decades, but buying lots of dollars wouldn't have made you rich, because dollars are not productive assets. They just sit there. No serious investor parks lots of money for long periods in currencies; it's better to buy productive assets (e.g., stock index shares) in that currency.
If Bitcoin ever becomes a good currency, it too will be a bad choice for speculation. A financial company with Bitcoin infrastructure might be a good investment. But Bitcoin's high volatility, which makes it great for speculation, will have to vanish if it ever becomes a decent currency.
Normally there's some sort of external factor that you're indirectly speculating on -- the success (or failure) of the company issuing a stock, for instance. With most cryptocurrencies, though, there's no economic fundamental underlying the price; speculation is the primary (and, in many cases, only) thing controlling the price.
The fact that cryptocurrency markets aren't regulated -- and, in fact, are frequently manipulated by schemes that would be illegal in any other marketplace -- doesn't help, either...
In case of the top ~100 cryptos/tokens, there is usually an external factor.
Besides that, the distinction between speculation and investment is not as clear as you say.
By your definition, there is no such thing as "investing in art" - only "art speculation".
The definition of investment/speculation I prefer is whether the asset purchase is based on economic reasoning, or emotional reasoning. The latter is people buying "because the charts are growing", or "because the market is hot but will be hotter", or using technical analysis voodoo.
If you have a basis for your purchase price that is not connected to historic price charts, you're an investor.
Investing in art happens all the time. Movie companies do it reliably when they create or purchase films with the hope of generating both economic value (that is, enjoyment) and long-term profit. Music companies do it when they give a band money to make a new album. Touring art shows could also be seen as an investment where they acquire assets and then generate value (that is, viewership) with them. But yes, buying and storing paintings in hopes they will be worth more later is speculation.
Interesting question. I'd assume that it's not and that the Warren Buffets, pension funds and value investors outnumber significantly the day traders (which are trying to profit off the former) and speculators.
It's the same as with other investments. You're putting some money in, with the hope that the thing you buy will appreciate in the future.
When you buy stocks what exactly do you buy? Some stake in a company? Nonsense. You're just hoping that company will do well and your stock will appreciate.
Sure you can invest in commodities like oil or gold. Does that mean that an oil tank will be delivered to you door? No. You're just creating a virtual position with that commodity, hoping to close it later at a better price.
If I believe that shares of stocks generally come with votes, which allow you to control the company if you have enough of them...and I believe that oil or gold futures do indeed entitle you to take physical delivery, does that mean I should not invest in cryptocurrencies, because I inhabit a different reality than those who do?
the ability of a consensus protocol & its associated distributed system(s) to preserve an accurate history in the face of a multi-million (or billion) dollar bug bounty and/or state-level attack. You get a price that discounts the risk of failure on that front and the failure to win mindshare / real use.
There are many strong arguments as to why that's a bad bet, but that's the bet IMO.
Just like any currency - the goods that can be traded for it. Not useful as a currency in places with solid currencies like the US or EU, but some countries have poorly functioning currencies where cryptocurrencies provide some benefit. Also, it has value as a transfer currency, like when your own country limits how much money you can take out of the country.
In places where you can move money easily, and the local currency is stable and generally usable, then it's basically a trading commodity like gold or oil.
While you're being downvoted, I wouldn't necessarily disagree.
On the stock market (which we consider a more legitimate investment), share price is entirely driven by perception and the amount of buyers vs sellers. This resembles cryptocurrencies as well.
The difference, however, is that there is an underlying company you're betting on with a stock, and buyers often believe that a company will have more buyers in the future due to the company's performance and its actual returns.
Cryptocurrencies are a much more volatile, short-term investment with virtually no regulations, and there's very rarely an underlying bet aside from "this sounds good and will sound good to other people too."
There maybe little in the way of special regulations for cryptocurrencies but certainly fraud is still illegal, no matter the specific industry or asset.
I think when people say there are 'no regulations' it communicates an idea that theft, fraud and/or violating contracts are not prosecutable. Maybe that's my own flawed interpretation but I believe that's how it comes across to the average person.
If you think hyperinflation is coming on, you should be buying as much real estate as you can right now and lock in a 30-year low rate financing. When hyperinflation hits, your debt will just evaporate away!
As long as we're trying to rehabilitate financial terms, cryptocurrencies don't have "market caps". Stocks do, because they represent companies which could plausibly be purchased in one go for something near that number. But currencies and commodities don't have market caps, because buying up an entire currency a) doesn't make any sense (the value of a currency is in its continued circulation), and b) would wildly distort the price if even a fraction of the total were purchased.