[bigtunacan]

Overall, I enjoyed the analysis of the piece, but I disagree with their take on market cap.

Amy Castor - "Yeah, market cap is a meaningless number. It assumes everyone bought at the current price and could cash out at the current price."

We could just as easily apply that basic logic to any security. Amazon(AMZN) is ~3275 a share with a market cap of ~1.668T. That also assumes everyone could cash out at ~3275, but the reality is if selling pressure is higher than the buy side demand that selling shares will drive the price down as buyers would be able to continually bid lower. Eventually it would reach ~0 share price and effectively a 0 market cap.

So in that sense token market cap is a fair equivalency. What makes a dollar worth a dollar? Crypto value at any given point in time is just an exchange value against fiat currencies. This isn't much different than an exchange value between USD and the Ruble; it will fluctuate.

[acdha]

> Eventually it would reach ~0 share price and effectively a 0 market cap.

This is the misunderstanding breaking your argument: AMZN shares are fractional ownership of a company with assets and ongoing revenue. In the event of a business downturn, those will go down but they’re not going to zero in any plausible scenario - even bankruptcies usually return some fraction of value to shareholders.

This is important to understand because cryptocurrencies are the weakest form of a fiat currency: unlike those AMZN shares they have no value except for social consensus and unlike a sovereign currency they have no pressure creating demand — nobody must have them to pay taxes, there are no government contracts or salaries, etc. and there’s no inherent value to a random number so there’s nothing to keep that floor above zero.

[fragmede]

> even bankruptcies usually return some fraction of value to shareholders.

The three issues with that are 1) liquidation preferences, 2) the fact that normal people can only afford to hold an infinitesimal amount of Amazon stock, and 3) (basically) only common stock is available for purchase by normal people. This means while that's technically true, unless you're, eg Jeff Blackburn, you ain't getting shit if Amazon were to close shop and return the money to investors.

Let's say you're holding 100,000 shares of AMZN. At ~$3k per share, that's some $300mm in shares, but with 508.84M shares outstanding, that's a grand total of... 0.02% stake in the company. In an unlikely fire-sale of the company and returning value to shareholders, that could still be worth something, but it's a unreassuringly small number.

[ipaddr]

They represent the same value prop as any stock. Any company could go to 0 and the floor of the exchange is littered with delisted companies.

Amazon is big and the chances it goes to 0 are less than a company still making vcrs. The same can be applied to bitcoin.

Government and other contracts could be cancelled. The value of assets can be lower the debt. Bitcoin has no debt while a company like Amazon can have billions of dollars of debt.

[acdha]

> They represent the same value prop as any stock.

Try thinking about this a bit more: what do you have if you buy a share of stock? What does that company own, what is its ongoing cash flow, etc. Now repeat the same thing for Bitcoin and notice how the answer is “nothing” except for the possibility of getting someone else to buy your coins.

That's the difference: there's no plausible reason to think that people are suddenly going to stop shopping online or using cloud computing. The price isn't going to suddenly tank because other people will buy into a popular company which has shown it can reliably run profitable businesses.

In contrast, nobody needs Bitcoin for any reason — we all have alternatives for currency, value storage, etc. which are cheaper, faster, and easier to use and almost nobody as a requirement that they buy Bitcoin. If some web3 play actually comes up with something normal people want and they all switch to Ethereum, there's no floor on the price. Unlike Amazon, there's no revenue stream which can be used to pay dividends or buy shares back when the price falls.

Another way to think about it is to ask who'd notice if it's gone. Amazon disappearing would disrupt business all over the world in multiple industries, and that cost of switching provides a lot of inertia. Bitcoin is mostly used for speculation and the vast majority of the fraction of transactions representing real economic value have easy replacements. When the switching cost is that low, there's little pressure to stay. Even if you really believe cryptocurrencies are the future, there's no law of the universe saying it's going to be this one rather than the many drop-in replacements.

[cuteboy19]

> Bitcoin has no debt

True, but it also burns many TWHrs of electricity everyday. Also I doesn't have any revenue.

If you look at it like you would look at a normal company, then it would be a terrible purchase. A company that just burns cash for no reason and generates 0 revenue

[FabHK]

> We could just as easily apply that basic logic to any security.

Not quite. An Amazon share is a claim on future residual cash flows, whose net present value constitutes the (unknown) "true value" of the share. If Amazon falls to 1/10th of its current price because of some tweet by Elon or whatever other (extraneous, fluke) reason, lots of people would be lining up to buy it, because they get a stake in an actual business that would repay them their investment within a few years. So, no, it would not reach 0 share price.

(So, while the argument in the article needs some refinement, its broad thrust is true: market cap for a publicly traded company is much more meaningful than market cap for a crypto currency.)

[nightski]

In theory it sounds so logical!

Is it though? Have you actually tried to apply this in practice to a trading strategy? I think once you start trying to predict prices based on NPV of future cash flows this quickly falls apart, even with large behemoths like Microsoft, Apple, etc...

[FabHK]

I am not suggesting that you or I can compute the NPV of future cash flows and then value the share, certainly not easily. But that was not the point. The point was to distinguish shares (and other securities) from coins: the price of the former is (softly) constrained to be within the vicinity of their intrinsic value. Cryptos have zero intrinsic value.

[mrb]

Crypto have intrinsic value: they are payment networks that work even where traditional systems fail. No denied transactions. No limits. No "account" to open. Works for the underbanked. Send money truly anytime anywhere. No other system does this. That's the value.

[nightski]

The distinction is meaningless to me. There were companies in the dot com bubble which had extremely high valuations which went bust as just one example among many. These stocks were not softly constrained at all. It was pure speculation and it happens all the time.

I don't think it is right to call growth speculation "intrinsic value". The only thing that is truly intrinsic in my opinion is profits. But profits aren't a good way to measure value of an asset. Because the asset (stock in this case) is separate from the company itself. A company could generate slim profits and not grow each year. That has intrinsic value to the employees and customers. But that does little for the stock.

[anonporridge]

This illustrates an important point to me.

First of all, money or value is a purely memetic construct. It's a grand illusion that only exists in our collective network of consciousnesses and operates as an abstraction to efficiently keep track of favors owed.

Therefore, value or money doesn't just transfer with explicit trades, as in trading $40,000 for 1 bitcoin adds $40,000 of value to bitcoin. Value also transfers memetically and invisibly, as in many people suddenly start to believe that asset B has 20% more value than asset A than it did yesterday. No explicit trade took place to create that transference of value. It's just that lots of people suddenly started believing that asset B was worth more favors that asset A. Sometimes that value is fairly easy to define, like by projected earnings of a company over the holding period of a stock. More often it's a nebulous and decentralized calculation of the market.

[davidgerard]

No. "Market cap" of an equity stock is a useful number that tells you something. "Market cap" of a cryptocurrency tells you no useful information about it.

What you care about is liquidity (can be roughly estimated from exchange data) and trade volume (much harder to estimate, in the face of endemic wash trading everywhere in crypto) - you care about movement of the asset and the movement of the money for it.

[quickthrowman]

AMZN had $8B of shares traded today. Just under $2B of BTC traded hands across the major exchanges on Wednesday.

AMZN is a single ticker, there’s several orders of magnitude more liquidity in equities alone than all cryptocurrency combined. $34B of SPY shares traded today, and that’s a single ETF.

> That also assumes everyone could cash out at ~3275, but the reality is if selling pressure is higher than the buy side demand that selling shares will drive the price down as buyers would be able to continually bid lower. Eventually it would reach ~0 share price and effectively a 0 market cap.

This is wildly inaccurate.

[saalweachter]

> We could just as easily apply that basic logic to any security.

People do, uh, buy whole companies from time to time. When they do, the price is at least close to the current market cap of the company.

Barnes and Noble had been publicly traded, but was taken private in 2019. The private equity firm paid about 140% of the market cap at the time the deal was announced.