[airstrike]

> The same is true of the stock market, or regular “fiat” currency.

No, it's not. Stocks are priced at the present value of future cash flows generated by the underlying assets.

Fiat currency has no value in and of itself. Foreign exchange is essentially determined by the difference in interest rates between countries (and investors' beliefs as to which way those interest rates will go in the future). Those interest rates are (indirectly) related to what is produced by each country.

Bitcoin is just plain make-believe.

> The fact that people have been willing to pay so much for US dollars or British pounds or Japanese yen has meant a lot in this world.

People also gave Bernie Madoff ~$65 billion dollars and it was all make-believe as well.

> Isn’t it justified to awe at the power of a decentralized currency?

Decentralization for decentralization's sake isn't inherently valuable. Or at least I wouldn't argue that to be an axiomatic truth. The burden of proof is on the bitcoin bulls.

[gfodor]

Stocks are not priced at the present value of future cash flows of the underlying asset. You're conflating valuation metholdogies with price. Stocks are priced at whatever the market decides, which may or may not be based at all on market participants' assessment of future cash flows.

[airstrike]

I'm not conflating things. "What the market decides" is either the PV of future cash flows or investors' expectation of what other market participants estimate the PV of future cash flows to be. It's turtles all the way down.

Markets aren't perfect but they are efficient; feel free to believe in the strength of that efficiency as you see fit, but in any case there is an underlying asset that generates cash flows.

You can nitpick arguments in my response, and I'll be happy to clarify any omissions, but my whole point is that crypto has no similar underlying asset and is therefore an entirely different beast.

[gfodor]

You've moved the goalposts I think -- you've conceded that what the market decides is in part based on what market participants' think other future participants will do. This means that the price of a stock is not the discounted future cash flows of a company -- the price of a stock is what the market will pay for it. There is no reason to assume present or future market participants will pay a price for a stock based upon a specific valuation model. If you even consider for a second how most people invest and how the derivative markets work you should call into question the idea that the stock market should ever be expected to converge universally on a price based on such a simplistic valuation model such as discounted future estimated cash flows. It's an unfalsifiable proposition anyway, so is a fairly useless mental model imho.

[airstrike]

I've not moved the goalposts. I'm just saying the fact that stocks are also driven by people's perceptions of other people's perception of the stock's true price doesn't negate the fact that the discounted value of future cash flows ultimately underpins the asset's value.

For what it's worth, this is my field of expertise. I work at a top bank in Wall Street and assure you discounted cash flows isn't a "useless mental model". Just ask the Court of Chancery in Delaware.

[gfodor]

Discounted cash flow analysis isn't a useless mental model, assuming the market will (eventually) price stocks that way is. How would you disprove that claim? You can't -- it's unfalsifiable and hence meaningless.

[airstrike]

I can prove people use it on a daily basis to value stocks, publish equity research reports on them, and the courts look to it as one approach to inferring the fair value of an asset. It has a non-zero impact on the way markets value stocks.

DCF models aside, the notion of the "present value of future cash flows" (and the time-value of money concept that drives it) underpins all of corporate finance. It is the most fundamental building block of modern finance and it's in everything from Finance 101 courses to derivatives trading. Clearly the market utilizes it to value assets and stocks are no exception.

I'm not saying the entirety of valuation is predicated on DCF models -- feel free to re-read any of my comments.