Cryptocurrency: Marketcap vs Value
Zaktualizowano
Today I would like to discuss marketcap and how it's played a huge role in pumping cryptocurrencies and accelerating their value assessment. Value is usually assigned as a function of supply and demand and is hopefully tempered by the utility and function of the item being assessed. With the advent of crypto like bitcoin and lesser known alts like verge websites like coinmarketcap.com have begun to emerge. These sites rank crypto by marketcap which in and of itself says nothing about that coin besides the fact that someone purchased it for a particular price and now we've taken that price and extrapolated it to all existing coins. However, I feel it has the psychological effect of convincing people of the value of a coin and a rank as to which coins are better than others purely based on marketcap and nothing more. Let's look at why this isn't necessarily a good thing and what other factors can be looked at to determine a cryptocurrencie's true value.
Say I want to sell a share of a company. I sell 10% of my company for $1000. Is my company now really worth $10,000? Most people would pause and think and consider what my company does, who contributes to it's operation, the business plan, and many other factors before jumping to a conclusion. The same should be done in crypto. An easy way to asses this right out of the gate is to look at daily trading volume, transaction volume within the coin itself, developer activity of the main software on github or the coin's own website, and social network activity and general enthusiasm about the usefulness of the coin. Reading the project's whitepaper can also shed light on the aims of the creators and give you an idea whether the project is too ambitious or right on track and whether the founders have realistic goals or the ability to reign in goals that are too lofty. Another way is to look at sites that aggregate these rankings in a quantifiable way. Coingecko.com does a descent job of this for a quick overview, but it is important not to rely on one source. There are numerous articles on what happened to the price of bitcoin when the creator of coinmarketcap.com decided, on a whim, to remove South Korean exchanges from his marketcap calculations. The marketcap of many coins, including bitcoin, on that site dropped and it caused a huge sell off which was a great discount to those paying attention to multiple sites or those doing arbitrage trading.
So with all of this going on and unreliable information everywhere how do we make a value judgement? What is the real value of bitcoin? No one seems to be able to answer this simple question with a number. This probably stems from the fact that it's not completely quantifiable. When I think of the value of bitcoin I don't think of a number. I think of the uses it will have in the future and I look at what markets it could possibly replace and the likelihood of it replacing those things in the near future. Many people in the world want to change things for the better and I think bitcoin has that potential. The ability to settle payments across borders and use the internet as a means of freedom from oppressive governments and freedom of trade is a huge utility in bitcoin's favor. The fact that it is well known and still operates today after surviving on the internet for over 8 years goes a long way to secure it's value. Bitcoin and cryptocurrency make traditional forms of currency obsolete and I do not think it is overzealous to expect them to replace traditional money eventually. Will bitcoin take that place or will some other crypto pop up and replace bitcoin. It's hard to say. As of right now brand recognition, the ability to upgrade itself, it's strong developer following, and second layer solutions like the lightning network have bitcoin way out in the lead. What is the value of a world currency to you? What is the value of being able to transact with anyone anywhere in the world even if your countries government collapses?
Say I want to sell a share of a company. I sell 10% of my company for $1000. Is my company now really worth $10,000? Most people would pause and think and consider what my company does, who contributes to it's operation, the business plan, and many other factors before jumping to a conclusion. The same should be done in crypto. An easy way to asses this right out of the gate is to look at daily trading volume, transaction volume within the coin itself, developer activity of the main software on github or the coin's own website, and social network activity and general enthusiasm about the usefulness of the coin. Reading the project's whitepaper can also shed light on the aims of the creators and give you an idea whether the project is too ambitious or right on track and whether the founders have realistic goals or the ability to reign in goals that are too lofty. Another way is to look at sites that aggregate these rankings in a quantifiable way. Coingecko.com does a descent job of this for a quick overview, but it is important not to rely on one source. There are numerous articles on what happened to the price of bitcoin when the creator of coinmarketcap.com decided, on a whim, to remove South Korean exchanges from his marketcap calculations. The marketcap of many coins, including bitcoin, on that site dropped and it caused a huge sell off which was a great discount to those paying attention to multiple sites or those doing arbitrage trading.
So with all of this going on and unreliable information everywhere how do we make a value judgement? What is the real value of bitcoin? No one seems to be able to answer this simple question with a number. This probably stems from the fact that it's not completely quantifiable. When I think of the value of bitcoin I don't think of a number. I think of the uses it will have in the future and I look at what markets it could possibly replace and the likelihood of it replacing those things in the near future. Many people in the world want to change things for the better and I think bitcoin has that potential. The ability to settle payments across borders and use the internet as a means of freedom from oppressive governments and freedom of trade is a huge utility in bitcoin's favor. The fact that it is well known and still operates today after surviving on the internet for over 8 years goes a long way to secure it's value. Bitcoin and cryptocurrency make traditional forms of currency obsolete and I do not think it is overzealous to expect them to replace traditional money eventually. Will bitcoin take that place or will some other crypto pop up and replace bitcoin. It's hard to say. As of right now brand recognition, the ability to upgrade itself, it's strong developer following, and second layer solutions like the lightning network have bitcoin way out in the lead. What is the value of a world currency to you? What is the value of being able to transact with anyone anywhere in the world even if your countries government collapses?
Uwaga
This is beginning to sound like a VISA commercial.....priceless. ;)
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