[Fuldagap]

Originally Posted by SmartCat

Nickpicking, but this $3 trillion number is so misleading. That's because it does take much money to move a meme crypto from $1 million marketcap to $1 billion marketcap.

Instead, you should look at actual net volumes (inflows minus outflows) traded in all crypto exchanges and P2P networks. It works out to be roughly $1 billion (or thereabouts). That is, $1 billion incremental capital went into cryptos for investment/speculation in 2020. Eg, North American crypto market size estimates:

Attachment 2237663

Yes, people look at actual net volumes too. That net volume is in terms of dollars, right?

The $3T figure tells the market cap of all crypto currencies. It could be zero tomorrow. Market cap of Microsoft could be zero too tomorrow. I'm not sure what we are getting at here by looking at net volumes and relating it to $3T figure. Nitcpicking!? Alright then.

Maybe we ought to ask how prices of cryptos are governed. Do we really know how prices of stock market are governed (read calculated)?

If $3T is misleading then other such data for other "asset" classes can also be deemed misleading.

NSE co loacation scam happened right under the nose of SEBI (just a simple example). Read about it. Is it regulation that would give credence to cryptos?

[SmartCat]

Originally Posted by Fuldagap

The $3T figure tells the market cap of all crypto currencies. If $3T is misleading then other such data for other "asset" classes can also be deemed misleading.

No other asset class uses the word "market capitalization". There is no "Gold marketcap" or "real estate marketcap" or "bond marketcap". The phrase is used exclusively for equities and stock markets. That's because definition of marketcap is number of shares outstanding x price per share.

Here, the keyword is "shares", not "number of" or "price". That is, if an asset has nothing to do with have "shares", you cannot use the phrase marketcap. However, if there is a Gold ETF or Bitcoin ETF or REIT, then it can have a marketcap.

Size of other assets like bonds, gold and real estate is always defined by "fresh inflows" or fresh sales. For eg:

- India's Gold market size is 800 to 1000 tonnes.
- India's real estate market size is $100 billion.

Both these are fresh sales or inflows into the asset. Nobody calculates the value of all the Gold that is there in India and multiplies it with the price. Nobody calculates the value of already built up real estate and multiplies it by current value.

So, when you say cryptos have a "marketcap" of $3 trillion, it gives a wrong impression that it is HUGE market. It gives an impression that if cryptos crash, the world economy will crash. But that is not the case at all - because actual capital deployed in cryptos is still extremely miniscule.

[Fuldagap]

Originally Posted by SmartCat

No other asset class uses the word "market capitalization". There is no "Gold marketcap" or "real estate marketcap" or "bond marketcap". The phrase is used exclusively for equities and stock markets. That's because definition marketcap = number of shares outstanding x price per share.

Here, the keyword is "shares", not "number of" or "price". That is, if an asset does NOT have "shares", you cannot use the phrase marketcap. However, if there is a Gold ETF or Bitcoin ETF or REIT, then it can have a marketcap.

Size of other assets like bonds, gold and real estate is always defined by "fresh inflows" or fresh sales. For eg:

- India's Gold market size is 800 to 1000 tonnes.
- India's real estate market size is $100 billion.

Both these are fresh sales or inflows into the asset. Nobody calculates the value of all the Gold that is there in India and multiplies it with the price. Nobody calculates the value of already built up real estate and multiplies it by current value.

So, when you say cryptos have a "marketcap" of $3 trillion, it gives a wrong impression that it is HUGE market. It gives an impression that if cryptos crash, the world economy will crash. But that is not the case at all - because actual capital deployed in cryptos is still extremely miniscule.

Although i did not mean to emphasise gold or real estate when i said 'assets' but it is a good explanation for anybody interested in reading nevertheless.

World economy or national economy has little to do with any market cap whatsoever of any 'asset'.

If anyone thinks $3T is misleading, he is being mislead unnecessarily. It is the market cap of all cryptos. I dont think a seasoned person would be overwhelmed by that number. Kids might, just might. Kids are smarter though in my opinion.

[Samurai]

Originally Posted by Fuldagap

If anyone thinks $3T is misleading, he is being mislead unnecessarily. It is the market cap of all cryptos. I dont think a seasoned person would be overwhelmed by that number. Kids might, just might. Kids are smarter though in my opinion.

Alright... you can kindly reveal whether you have any background in finance or economics. It is really hard to debate with you because we are not finding any common foundation.

[Fuldagap]

Originally Posted by Samurai

Alright... you can kindly reveal whether you have any background in finance or economics. It is really hard to debate with you because we are not finding any common foundation.

Sir I'm a 9th pass person. Haven't had much of school, let alone college. My background is not much to be proud of either. Just did some odd jobs here and there. I hope it suffices.

Back to the topic, so you are basically saying that $3T is hugely misleading and therefore, maybe false?
We should see cash inflows or outflows to see the 'truth'. I will try and do this with other 'assets' too where it is applicable but definitely with cryptos. I think this might give us the much solicited common foundation. I will now go back to doing whatever I was doing. Warm regards.

[alpha1]

Originally Posted by warrioraks

Industrial value, aspirational value, intrinsic value. Call it whatever you want. The point is, anything is an asset because of the exact reason Samurai stated - Collective belief in society of that thing being valuable. And since when did things in LaLa land stop having value?

As I understood from my Q&A session with ashokrajagopal on this thread, Bitcoin is definitely not usable as a currency for the large part of the world.
How many bitcoin believers/investors/users realize that?

Any collective belief in bitcoin in spite of this knowledge can only be termed as a speculative bubble which involves finding a greater fool.

And if the collective belief exists because of lack of this knowledge, then I term it as ignorance.

Till the time there is a greater fool, anything and everything can have value.

I would like to correct you: "till the time there is greater fool, speculators can make money out of anything"

[warrioraks]

Originally Posted by alpha1

As I understood from my Q&A session with ashokrajagopal on this thread, Bitcoin is definitely not usable as a currency for the large part of the world.
How many bitcoin believers/investors/users realize that?

Any collective belief in bitcoin in spite of this knowledge can only be termed as a speculative bubble which involved finding a greater fool.

Ashokrajagopal’s posts were very insightful. Re-enforced my belief that Cryptos in the current state are either a joke or a scam. I would not touch it.

However responding to your points.
- I never said crypto is a usable currency in any of my earlier posts. I said crypto coins have value because believe in it.

- On speculation, the nature of investing in anything that does not have fixed returns is speculation. People invest in stocks based on forward looking earnings. People invest in real estate with the hope that it will appreciate based on some forward looking factors. The same is happening for crypto. People believe that those coins will one day be accepted as currency and are willing to bet/gamble their money on this forward looking factor. It all boils down to perspective. A person who has near zero risk appetite will term equities as speculative. A person who believes in equities and has made a killing out of it might call this an art or science. The simple point being, things are not black and white. If you are investing based on forward looking factors, there is some degree of speculation. The magnitude is what varies.

[SmartCat]

Originally Posted by warrioraks

- On speculation, the nature of investing in anything that does not have fixed returns is speculation.

Zomato/PayTM/hot startup/Rivian valuations are no better than crypto valuations. But for assets that generate cash, you can arrive at its fair value, by comparing cash flow with 1 year bank FD returns (currently 4.5% pa).

- When you invest in a stock, you could look at its dividend yield and compare it with FD returns. If your stock does not pay dividends, you could atleast look at index or sector's dividend yield to see if stocks in that sector/country are overvalued or undervalued.

- For investment in apartment/commercial building, you could look at rental yield (typical annual rent in that locality divided by invested amount) and compare it with 1 yr FD returns

- Even for a piece of residential/commercial/industrial land, you can arrive at its fair value by calculating how much rent you will get if you build multiple apartments/multi-floor commerical building/industrial shed on that piece of land.

- Fair value of agricultural land can be arrived at if you have knowledge of farming (based on what crops can be grown)

- Sovereign Gold bonds offer 2.5% pa (which is not bad considering that savings account pays 2.75 to 3% pa)

[arbardhan]

As long as Crypto is convertible into any FIAT currency. It needs to be regulated. Most investors are excited about crypto due to the massive swings it provides. I have seen few crypto traders who were also fx-rate trading enthusiasts.

The technology of blockchain and open ledger is invaluable. An e-rupee with an open ledger to track transactions would be the best bet.

Currency is the property of a nation state - undermining it entails undermining the state itself. Throughout history it has been proven time and again that a nation state is the most stable form of a civilization.
Crypto wont lead to utopia - It needs to come after if the said utopia has been established

[rkv_2401]

Originally Posted by SmartCat

Nickpicking, but this $3 trillion number is so misleading. That's because it does take much money to move a meme crypto from $1 million marketcap to $1 billion marketcap.

Instead, you should look at actual net volumes (inflows minus outflows) traded in all crypto exchanges and P2P networks. It works out to be roughly $1 billion (or thereabouts). That is, $1 billion incremental capital went into cryptos for investment/speculation in 2020.

Interesting. I figured there was a substantial difference between how much money was moved from FIAT to crypto-currencies, and how much of this 3 trillion dollar market-cap is due to the meteoric rise in 'value' of crypto (in the sense someone could have bought 1 lakh INR's worth of Ethereum at 200$ last year and now the same Ethereum is 'worth' 11x more), but I didn't think it would be 3000x the actual difference.

@SmartCat could you share how you arrived at this value with us? How did you track actual net volumes of all crypto exchanges and P2P networks?

P.S. I also doubt anyone is going to provide 3 trillion dollars, or even 1/3rd of that, worth of exit liquidity if everyone were to sell their coins, but I suppose that's true for almost all asset classes.

[Electromotive]

Originally Posted by rkv_2401

...

I think what SmartCat meant was it does NOT take much money to move meme cryptos.

The entire concept of marketcap is bs anyway. Even for equities it is a misleading figure, especially for stocks with low float which are easier to manipulate and thus a lot more volatile.

Only with a few trades a group of market manipulators can move a low float stock or crypto from say, $1 to $50, and boom, market cap went up 50 times. This doesn't mean $49 per share (or crypto unit) flowed in for all outstanding shares, only a few shares/crypto that were traded exchanged hands at the high prices. And if everyone tried to cash out, the bubble pops. Which is why crypto is a ponzi scheme.

[warrioraks]

Originally Posted by SmartCat

Zomato/PayTM/hot startup/Rivian valuations are no better than crypto valuations.

Thank you SmartCat
I would add gold (and other commodities) to this bucket. Except for sovereign gold bonds where there is a defined interest rate (2.5%), it’s nearly impossible to find fair value of these kind of assets as well.

Originally Posted by SmartCat

But for assets that generate cash, you can arrive at its fair value, by comparing cash flow with 1 year bank FD returns (currently 4.5% pa).

As far as I understand, almost always there is a difference between the fair value vs market value of cash generating assets. I would assume this is primarily because of forward looking factors and speculation. Otherwise no asset would ideally trade above or below their fair value. If my understanding is wrong, I am open to be corrected.

[SmartCat]

Originally Posted by rkv_2401

How did you track actual net volumes of all crypto exchanges and P2P networks?

You can Google, but frankly, I think all of them are guesstimates, with some mixing up trading volumes with net inflows.

worth of exit liquidity if everyone were to sell their coins, but I suppose that's true for almost all asset classes.

Yeah, true with all assets. There is an important difference though -> With cryptos, net wealth stored will be equal to cumulative inflows into the asset (since 2009). There is no extra wealth generated since cryptos don't generate cash.

However, with stocks and real estate, in addition to the initial inflow, extra cash is injected into the asset in the form of company profits & rental income. Company can either distribute the profit it makes either via dividends or share buyback. A real estate owner can use rental income to build an additional floor and generate even more income than before.

Originally Posted by Electromotive

I think what SmartCat meant was it does NOT take much money to move meme cryptos.

Which is why crypto is a ponzi scheme.

See, this is where I differ in view from a typical crypto pessimist. As mentioned before, crypto is now a mainstream and proper asset class because of its unique characteristics (that no other asset in the world has).
https://www.team-bhp.com/forum/shift...ml#post5200997

There is a middle ground between "Crypto is a Ponzi scheme" and "Crypto is the future of money"

[Electromotive]

Originally Posted by SmartCat

See, this is where I differ in view from a typical crypto pessimist. As mentioned before, crypto is now a mainstream and proper asset class because of its unique characteristics (that no other asset in the world has).
https://www.team-bhp.com/forum/shift...ml#post5200997

There is a middle ground between "Crypto is a Ponzi scheme" and "Crypto is the future of money"

Are you familiar with Soros' theory of Reflexivity?
The problem with the meme economy and social media is that price is dictated by demand which is dictated by hype. Hype is everything, hype is king. FOMO everywhere, FOMOing like mad.

There is a disconnect from fundamentals and at some point the reality will come back to bite. Till then there is money to be made from an expanding bubble. But, like a ponzy scheme, only the early adopters get rewarded others will end up holding the bag.

The issue with crypto is that there is no intrinsic value. All of its value is reflexive - based on perception. Crypto is just another application of blockchain tech, so what is the intrinsic value without blockchain? I couldn't find any. It is not easy to use or understand, it is easy to lose (misplace wallet passphrase?) and requires a third party (miners) for even transactions to take place. Fiat has offline mode and transactions in cash require only two parties. The wild west like behavior where every nobody is printing their own crypto is a signature of the fundamentally fraudulent nature of crypto. 100s of coins and tokens are being created every week and somehow they all have a dollar value? How does that not scream scam? The regular rugpulls are proof enough. The fact is, every actual dollar/fiat that enters the crypto maze provides a dollar exit to the early adopters - the people at the top of the pyramid. What happened to all that Ether that Vitalik supposedly donated to India's covid cause? That was a cash out event, I think.

Demand and supply ultimately dictate price but for assets like real estate, commodities or stocks, there is an intrinsic value (lower limit) based on utility or ability to generate income - eg. a stock's price won't stay below its EPS for long, that is the lower limit (excluding occasional market inefficiencies). Even fiat doesn't have intrinsic value but it is what the govt. collects taxes in and pays its employees, so it can't be done away with. So, fiat derives its value from the govt.'s ability to enforce its will -- domestic credibility, social services and military might. Crypto can't do any of that, it is all reflexive consensus and that can change or be forced to change. Hype can build up and it can die.

[SmartCat]

Originally Posted by Electromotive

The issue with crypto is that there is no intrinsic value. All of its value is reflexive - based on perception.

Surprisingly, NOT having intrinsic value is not an issue at all. Art, Wine, Vintage/Classic Cars, Antiques and Collectibles are significant (aka big $ transactions per year) asset classes with no/negligible intrinsic value. But people still buy and invest in these assets, ONLY because they know they will get a higher price if they wait for 5 or 10 years.

So, if people invest in cryptos hoping to sell them at a higher price later (despite not having intrinsic value), then it is totally fine.

100s of coins and tokens are being created every week and somehow they all have a dollar value? How does that not scream scam?

This argument is used a lot (that cryptos can be created in a bedroom) but that does not hold water.

You and me can start a Pvt Ltd company with Rs. 1,000 paid up capital and no operating business. But can we get anybody to invest in our business? Absolutely not. However, if Elon Musk quits Tesla and starts a new company from scratch, you can expect private equity investors to line up.

So the ease of starting up either a new crypto or a new business does not mean anything. The value of a business or a crypto comes from collective confidence that investors have about its long term future. For eg: some meme coins now have value simply because Elon Musk has called it out as his favorite. The coin that we both create at home will have no such value.

Crypto can't do any of that, it is all reflexive consensus and that can change or be forced to change. Hype can build up and it can die.

2020 was the inflection point for cryptos, when CNBC started allocating home screen page to cryptos along with stocks, bonds, currencies and commodities:



Now there are ETFs and derivatives (futures and options) on cryptos. Mainstream stock brokers allow trading of cryptos. Once these guys (Media & financial services firms) smell money, there is simply no going back.