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Bitcoin Businesses The Almighty Buck United States

What the Hell Is Happening To Cryptocurrency Valuations? (techcrunch.com) 258

The investment category of cryptocurrencies hit a new milestone this week, one that would have been unfathomable just a couple of years ago: $100 billion in combined market capitalization. The break above the 12-digit threshold is largely attributable to bitcoin, which is by far the largest digital currency in the still-nascent category, and which has been on a tear lately. From a TechCrunch article: There is one rational explanation that, if true, would totally justify this rapid increase in price across some of the major cryptocurrencies. And that is, maybe these currencies are actually worth these high prices, and maybe even worth many times more than that at which they are currently trading. But the problem is we have no way to figure out their value. Cryptocurrencies aren't public companies with earnings and expenses and EPS. For example, we can look at Apple's financials and determine its book value -- what the company's assets would be worth if hypothetically liquidated today. Of course, stocks trade at a premium to this, because people are enthusiastic that Apple will continue to perform well and this book value will continue to rise. But we can't do this with cryptocurrencies. We could guess -- and compare it to things like the total money or gold supply in the U.S. For example, if you're someone who thinks of cryptocurrencies as a store of value, the total estimated value of all gold in the world is more than $8 trillion dollars... meaning if bitcoin would ever replace or supplant gold, its current value is pennies on the dollar.
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What the Hell Is Happening To Cryptocurrency Valuations?

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  • tulpenmanie (Score:3, Informative)

    by fabriciom ( 916565 ) on Thursday June 08, 2017 @12:12PM (#54577483)
    New boom with disaster to whoever is left holding the last "coin".
    • Is this like were you can auction off a $20 for more than $20?

      The way that works is the two highest bidders have to pay, but only the highest bidder gets the money. People will bid up to the value of $20 because why not it's free money. But the 2nd place bidder will keep driving up the price in an attempt to lose less money.

      • by gnick ( 1211984 )

        The way that works is the two highest bidders have to pay, but only the highest bidder gets the money. People will bid up to the value of $20 because why not it's free money.

        I'm not convinced that it would get bid up to $20. What idiot would enter an auction where the second place bidder still pays but gets nothing in return? Does this situation exist in some context? If you're the only bidder, fine, wager a buck. Otherwise, the only way to win is not to play.

        • Sort of like these sites... Pay for each bid... everybody loses, as even the winner will often end up paying more than product value.

          https://usatoday30.usatoday.co... [usatoday.com]

        • Re:tulpenmanie (Score:5, Informative)

          by TheCowSaysMoo ( 4915561 ) on Thursday June 08, 2017 @03:37PM (#54579329)

          I *GUARANTEE* you the bidding will get to AND surpass $20. It's happened every time I've ever seen the auction experiment happen. Follow along...

          Bidder A: Sure, why not? I'll bid $1.
          Bidder B: (Thinking: So, I can bid $2 and profit $18?) I'll bid $2.
          Bidder C: (Thinking: So, I can bid $3 and profit $17?) I'll bid $3.
          Bidder D: (Thinking: Duh! I'll take $16 profit!) I'll bid $4.
          Bidder B: (Thinking: There's still $15 profit to be had.) I'll bid $5.
          [Bidder A drops out because they're getting a bit confused about everything]
          Bidder D: (Thinking: $14 profit, baby!) $I'll bid $6.
          Bidder C: $7
          Bidder D: $8
          Bidder B: $9
          Bidder C: $10
          Bidder D: $11
          [Bidder B now realizes that the auctioneer is going to make $21 for a $20 bill because both Bidders C and D have to pay up. Bidder B drops out.]
          Bidder C: (Thinking: At least I'll still profit $8.) $12
          Bidder D: (Thinking: At least I'll still profit $7) $13
          Bidder C: $14
          Bidder D: $15
          Bidder C: (Thinking: I don't really care about $4 profit, but I don't want to pay $14 for nothing) $16
          Bidder D: (Thinking: I don't really care about $3 profit, but I don't want to pay $15 for nothing) $17
          Bidder C: $18
          Bidder D: $19
          Bidder C: (Thinking: I don't want to pay $20 for a $20 bill, but I DEFINITELY don't want to pay $18 for nothing. Fine. We'll just end this whole thing and everything's even) $20
          Bidder D: (Thinking: Dammit! Now I'm screwed! He's getting $20 for $20 and I'm getting shafted with nothing, but I still have to pay $19! Screw it! I'll take a $1 loss instead of a $19 loss!) $21
          Bidder C: (Thinking: WTF?!?! He just bid $1 more than what he's getting in return and now I'm stuck paying $20 for nothing?! No way! I'll take a $2 loss instead of a $20 loss!) $22
          Bidder D: (Thinking: $3 loss is better than $21 loss) $23
          Bidder C: (Thinking: $4 loss is better than $22 loss) $24
          [etc., etc., etc.]

          It's not unheard of for the bidding to surpass $100 ($80 loss is better than a $98 loss!) before the experiment is ended due to the point having been made many bids earlier.

          The context is in how people think about risk, loss, and similar factors. Consider an RFP process for a $1-million project with a major, multi-national corporation (MMC) with billions of dollars in market cap. Winning the contract for the project would be a MAJOR windfall for the winning company (WC) on the assumption that a successful project might lead to more work. But, to win the contract, the bidding companies (BC) are going to have to travel to MMC headquarters several times over the course of the next several months on their own dime. They'll also need to create prototypes and other proof-of-concept materials on their own dime. Let's say that over the first month or so of the RFP process that most BC are eliminated and only two BC remain. We'll call them BC1 and BC2.

          Now that things are getting real, BC1 checks in with the group leading the RFP bid and finds out they've spent approximately $100k so far on the bid process. That's okay because their estimates suggest the project will cost $750k to complete successfully ($850k total; $150k profit). BC2 checks in with their group and finds they've also spent approximately $100k and they also estimate the project will cost $750k to complete successfully ($850k; $150k profit). BC1 and BC2 are aware that they are the last remaining companies bidding for the contract and that each very likely has similar expenses and estimated project costs.

          BC1 decides to up the game a bit and tells the RFP group to setup a special one-on-one meeting with BC1 CEO and the head of the project for MMC. They want further refined prototypes and a WORKING proof-of-concept. They estimate the additional meeting/work will cost $25k, but that still has them at $125k of profit. Meanwhile, BC2 catches wind of the special meeting and works up their own special meeting. Estimated $25k expenses, but that still has them at $125k profit as well. If both companies stopped at this point, one would win

    • Whats the Beanie Baby market looking like these days...?

    • Was also thinking "tulip mania." But hey, maybe it's a new virtual collectible good. Various trading cards, CS gun skins, and EVE ships don't have any inherent value either.

  • Ransomware (Score:4, Interesting)

    by Luthair ( 847766 ) on Thursday June 08, 2017 @12:14PM (#54577495)
    are the only external buyers - the rest is a crypto circle jerk.
    • Re: (Score:2, Insightful)

      by Anonymous Coward

      Bitcoin's growth is a combination of countries seeing it as legal tender (e.g. Japan, India), more companies accepting it in exchange for goods, and being the intermediary currency between FIAT and other cryptocurrencies. The other cryptocurrencies are design to improve bitcoin, or specialize in a specific industry.

      Industries like banking that have been running on the same slow, antiquated system for decades. There is no reason in this day and age, for money to take days to transfer. The smart ones know the

  • What's happening (Score:5, Insightful)

    by Dunbal ( 464142 ) * on Thursday June 08, 2017 @12:15PM (#54577505)
    Human greed. When people start selling houses and taking out new mortgages to "invest" in bitcoin, that's when you get the hell out.
    • Re: (Score:3, Informative)

      by nomadic ( 141991 )

      Yes, this.

      It's pretty much a Ponzi scheme.

      • by sl3xd ( 111641 ) on Thursday June 08, 2017 @12:45PM (#54577777) Journal

        I have no problem saying that cryptocurrency is a bubble and that there's a huge amount of speculation over hype driving up prices.

        What we're seeing is definitely not a Ponzi scheme, which is its own, very special -- and very different, form of fraud.

    • Re: (Score:2, Insightful)

      Oh yes, bitcoin is certainly built on greed, and you know what? It works. Will bitcoin crash, absolutely, just like it has many times before and just like it will many times more. But the damn thing is just not going away, like an std, it just keeps bouncing back stronger than ever. Because its built on strongest foundation of them all - greed. That, is the true (evil)genius of the cryptocurrency. The key is that even with a crash, the losers are not left with nothing, the bitcoins they are holding might be
  • Stop Ransomware (Score:2, Insightful)

    by Anonymous Coward

    Stop ransomware and you kill Bitcoin.

    • by crtreece ( 59298 )
      The WannaCry payment address has collected just over 17 BTC https://blockchain.info/addres... [blockchain.info]
      May 13 had the lowest bitcoin trading volume in the last 30 days @ around 75k BTC traded.
      So, the total number of payments for wannacry equals approximately .022% percent of BTC transactions on the day with the lowest trading volume in the last month. Total payments for wannacry are approximately .0017% of last weeks BTC volume of over 1M BTC. I don't think ransomware is the primary driver of BTC transactions,
    • Stop ransomware and you kill Bitcoin.

      Bullshit!

      Ransomware payments are only a tiny fraction of the drive behind the increasing demand/value of crypto-currencies.

      The true drivers are the impending collapse of the US Dollar combined with the world dropping it as the primary trade currency, and the global trend towards governments taking ever more control of people's money through "cashless" systems and fears of Greece-style "haircuts" where government simply confiscates some percentage from individual accounts when the government is in financial

  • Speculation (Score:5, Insightful)

    by sjbe ( 173966 ) on Thursday June 08, 2017 @12:24PM (#54577581)

    There is one rational explanation that, if true, would totally justify this rapid increase in price across some of the major cryptocurrencies. And that is, maybe these currencies are actually worth these high prices, and maybe even worth many times more than that at which they are currently trading

    Or more likely its a speculative bubble and like the stock price of Tesla it has far outpaced the current underlying fundamentals. They are basing this on valuations of derivative instruments relating to (mostly) bitcoin. Like a stock there is no cause and effect link between the market price and the actual value of the underlying asset. All it takes to get an absurd "valuation" is one party purchasing an interest in a fund or company dealing in bitcoin for a large amount of money. If I buy 10% of your company for $1 million dollars I am de-facto saying I think your company is worth $10 million. But the problem with that is that there is a winner's curse [wikipedia.org] effect at work. Just because one person overpays doesn't mean everyone else agrees.

    • by Junta ( 36770 )

      This is an important thing to highlight. There is the actual money changing hands, and then the extrapolation of that to a presumed total value. Said total value is fictional, and would obviously happen if suddenly 99% of people said they wanted to get rid of their bitcoin today.

      Of course, this applies to all sorts of 'wealth' such as stocks. Even with traditional currency, the economy will come to ignore money sitting somewhere not moving.

    • by sl3xd ( 111641 )

      Or more likely its a speculative bubble and like the stock price of Tesla it has far outpaced the current underlying fundamentals.

      This. Markets (or rather, the people acting within them) act according to the idea of "can I make money on this" rather than "does this actually make sense".

      There's still money to be made in trading stocks & commodities that are overvalued, and there are investors who see it at money on the table, so they go for it.

  • Bitcoin valuation (Score:5, Informative)

    by Anonymous Coward on Thursday June 08, 2017 @12:24PM (#54577589)

    Bitcoin is skyrocketing mainly because it's one of the only safe ways for kleptocrats to move their money out of China. For those that don't know, China has exceptionally strict wealth export laws so the paper billionaires there need a way to move their money out and into other markets.

    Take a look at a chart of BTC vs Yuan and you'll see an almost perfect inverse relationship.

  • Okay.... (Score:4, Insightful)

    by dugancent ( 2616577 ) on Thursday June 08, 2017 @12:26PM (#54577605)

    maybe these currencies are actually worth these high prices

    Hahahahahaha

    I have nothing useful to say. Just had to point out that it's not every day that see such absolute BS.

    • Re: (Score:2, Interesting)

      Think about this: money buys what can be made. Making things takes time. Technology makes it take less time. Labor.

      You work for 10 hours, you make $10/hr, the thing you make has to cost at least $100 or you don't get paid. Next guy works for 10 hours, makes $20/hr. You have to work 10 hours to buy something he worked on for 5; he only has to work 5 to buy something you worked on for 10.

      Trading labor.

      You can produce gold. Excessive amounts of labor can generate enough energy to do it by nuclear

  • I thought the blockchain was public. I'm not particularly knowledgeable of the process specifics or the computing power necessary for it, but if "valuation vs actual worth" is so important, I'm sure someone could simply set up a shop that tracks the amounts, type, frequency of transactions, among other stats of the currency simply by polling the blockchain and other publicly available records.

    And then, with the simple motto of supply and demand, one could estimate the worth at a very trusty rate, maybe even

    • The blockchain only contains the transfer of bitcoin, it doesn't tell you what the countervalue of the transaction was.

    • I was going to make a similar reply.

      Bitcoin is a fiat currency, based entirely on the trust relationship and the limited amount of bitcoin available. The only true worth it has is as a method of exchange between people. Seeing financial statements and assets makes no sense with regard to valuing a bitcoin. It is strictly "what can I get in exchange for it", nothing more.

      Folks speculating in bitcoin can cause temporary bubbles and other market distortions. But as the market for bitcoins (or other crypto

  • Interesting (Score:4, Interesting)

    by jediborg ( 4808835 ) on Thursday June 08, 2017 @12:38PM (#54577699)
    Financial Expert Peter Shiff made an interesting point in his podcast this week about crypocurrency valuations. As an Austrian Economist he believes the digital currencies will eventually implode and become worthless. The interesting point he made is that while bitcoins may be limited (they will eventually be capped at 21 billion bitcoins) cryptocurrencies ARENT. You can make as many cryptocurrencies as you wish, meaning they can be created in excess and therefore be exposed to inflationary or hyperinflationary effects that could cause a massive crash in the value of all crypto currencies.

    That said, i'm still gonna wait for a crash in bitcoin value this year, and then buy some as a purely speculative bet
    • Re:Interesting (Score:4, Insightful)

      by religionofpeas ( 4511805 ) on Thursday June 08, 2017 @12:47PM (#54577795)

      You can make as many cryptocurrencies as you wish,

      The value of cryptocurrency comes from the network effect. Sure you can take the Bitcoin code, and create a new blockchain, and change the name, but if nobody wants to use your coin, it's not worth anything. In order to gain value over existing coins it must offer some new distinguishing features that people actually care about.

      • Right, but the point is that when all the bitcoins have been mined, there will be a large number of individuals who wish to speculate in and mine the next cryptocurrency. Obviously with Bitcoin, the fact that it (seemed) to have any intrinsic value at first was because people were mining it, not because it was useful for actually purchasing things (since no one accepted it). If a large enough number of people jump onto a new crpytocurrency bandwagon (which seems likely as the early adoption payback is incre

        • If a large enough number of people jump onto a new crpytocurrency bandwagon (which seems likely as the early adoption payback is incredibly high), then voila - you have your network effect.

          I don't think you can make a large network based only on early adopters.

          • I don't think you can make a large network based only on early adopters.

            What might happen if a big player got involved. Or multiple big players? What if Ebay (Paypal), Amazon, Google and Apple teamed up to create a new cryptocurrency designed entirely as a means of final purchase? You could do a transaction end-to-end with their currency, hypothetically. Because of their massive reach, you could start paying in stores and restaurants around the world immediately. Let's say the only transaction fees w

            • What might happen if a big player got involved. Or multiple big players? What if Ebay (Paypal), Amazon, Google and Apple teamed up to create a new cryptocurrency designed entirely as a means of final purchase?

              Why would they not simply use the existing Bitcoin ? There's no advantage for them to use an unproven alternative with zero market share. And even if this new coin had an advantage for them, this would most likely translate into a disadvantage for other users.

              Let's say the only transaction fees were when you moved from their digital currency to national currencies and back

              That's only possible if the transactions were processed centrally by these big players, which would be a good example of such a disadvantage for users.

              • Valid points.

                But only for certain users. Most people would be content with Apple branded currency if it meant they could go to any store and purchase goods with their phone, saving the 2% that would have gone to the credit card company. Given enough market penetration, the only people worrying about such things would be the same people who are using bitcoin now.

                Except depending on how they set it up, it could be plausible that the privacy and anonymity features of bitcoin were replicated or even improved

      • Right... but the network effects aren't that difficult to address because the incremental challenges of supporting a second, third, or fourth currency are minimal, and the exchanges inherently benefit from those added transactions and complexity.
      • The value of cryptocurrency comes from the network effect. Sure you can take the Bitcoin code, and create a new blockchain, and change the name, but if nobody wants to use your coin, it's not worth anything. In order to gain value over existing coins it must offer some new distinguishing features that people actually care about.

        These "cryptocurrencies" are very open to manipulation, for a few of course. So similar to starting a new MLM, if you can "pay your way in" (make it perceived as having potential real value) so to speak, it could be very profitable for those few with more control. If done correctly you could effectively tank the established player pretty quickly. Word to the wise, realize your actual worth (don't invest $100,000 and strive to walk out with billions... go for the lower risk) and get out before someone els

    • If Peter Schiff really knew what he was talking about, he'd be making money by investing, not by telling others how to do it.

  • Lets assume for a moment, that you have two currencies, ByteCoin and FOLLAR (Fiat Dollar).

    Lets further assume, that both are at some sort of equilibrium at some point, where ByteCoin and Follar are trade one for one.

    The Follar, is controlled by a private bank, under the control of a Government, the ByteCoin is controlled by the worker units put in to process transactions.

    The Follar has all sorts of currency controls used to spy on and control the citizens of the Country, where the ByteCoin has non of those

    • That kind of depends on how the government enforces law regarding the crytocurrency, though, doesn't it? If you steal my money from the bank, the law gets involved. If you steal my bitcoins, do they care? If they don't, why would I store my wealth in bitcoins instead of dollars? If they do care, well then it is going to end up as taxed and encumbered as the dollar is.
    • Since both are fiat currencies, the one with least restrictions will become the preferred currency.

      I agree with this but there are several other things that come into play. How easy it is to use? What are the transaction costs? How easy is it to track?
      Credit cards are very easy to use but also very easy to track and have a high transaction cost. Credit cards companies managed to trick people into ignoring the transaction cost by giving the buyers kickbacks for using their cards. Bitcoin currently has high transaction costs and isn't able to be settled in real time. I see these are significant hurdl

  • by Bruce Perens ( 3872 ) <bruce@perens.com> on Thursday June 08, 2017 @01:16PM (#54577985) Homepage Journal

    Unbelievably high values for something that doesn't actually have any intrinsic value are generally followed by crashes.

    This is obviously a conspiracy theory, and I have no evidence, but the shady origin of Bitcoin (nobody really knows who Satoshi Nakamoto is) could mean that it was engineered by a national actor to crash national economies. It is, after all, a caricature of fiat currency.

    • by nomadic ( 141991 )

      I just figured it was developed by someone (or multiple someones) who realized it if it took off he/she would be on the ground floor and able to make a lot of money.

    • All the gold in the world has a combined value of $8 trillion, and it doesn't have anywhere near this intrinsic value. Why does it not crash ?

  • I say cryptocurrencies are fun!
  • Does anyone know if Venezuelans are all using some kind of crypto-coin instead of their own, nearly worthless, national currency?
    • It does not matter how much a currency is traded for versus e.g. USD.
      As long as you are mainly trading inside of your own country the outside value is close to irrelevant.

  • Is there any reason why, when posing a question about currency, you would not ask ANY macroeconomists?

  • Your accountants have just told you that the risk of offshore bank accounts is too high, thanks to those schmucks at Mossack Fonseca.
    The only solution left to hide your assets is the First International Bank of Blockchain.
    Lots of cash pouring in, with an inherently deflating asset, the price has to climb.
  • by Zontar_Thing_From_Ve ( 949321 ) on Thursday June 08, 2017 @02:24PM (#54578595)
    I've seen two big bubbles in my life in the USA come crashing down - the internet bubble of the 1990s and the previous decade's housing bubble. Here are the signs of a bubble.

    1) Prices keep going up even though intelligent people (Slashdotters, for example) can't see any real justification for it.
    2) People who don't know anything about the subject come to the conclusion that it will last forever and can't ever lose money.
    3) People believe it can't ever go down and start investing in it as a retirement strategy.
    4) Stupid people start getting into it. No offense, but when your waitress decides that cryptocurrency is going to be her ticket to becoming wealthy, it's time to get out of it.
    5) People start finding high risk ways to put money they don't have into it because they believe that as the price will only go up, they'll soon turn enough profits to pay back the high risk loans they got. Examples would be buying stock on margin and subprime home loans.
    6) Big money banks/investment firms in the USA find new ways to invest in it that nobody understands.
  • Just look at the growth curve. This has nothing to do with value; intrinsic or perceived. Bitcoin merely has this value because investors are piling in - and because Japan recently recognised it as a currency.

    But it isn't.

    It is not backed by any thing or government

    and like all bubbles the time to get OUT is when all the household investors start buying it. People who have never heard of cryptocurrencies until they read an article in the popular media and then "invest", they never make any money. They ten

  • Simple supply and demand solves this. If it is hard to find someone willing to sell then the price is too low. If nobody wants to buy the price is too high.
  • Early in the development of BItcoin or any other cryptocurrency, there was the fear that some exploitable cranny in the mining algorithm could be used to inflate the money supply beyond what the exponentially-more-difficult algorithm was supposed to allow, or that the encryption would be broken. There seems to be a feeling today that BTC has been around long enough now that no such vulnerabilities will appear.

    The weakest part of Bitcoin currently seems to be the exchanges. Having another major exchange poof

  • There is one rational explanation that, if true, would totally justify this rapid increase in price across some of the major tulip germ lines. And that is, maybe these tulips are actually worth these high prices, and maybe even worth many times more than that at which they are currently trading.

    Am I the dullest knife in the drawer?

    Because, seriously, I can't tell the difference between these two arguments.

Love may laugh at locksmiths, but he has a profound respect for money bags. -- Sidney Paternoster, "The Folly of the Wise"

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