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As an investor, why is crypto so hard to value?
121–130 of 193 posts
Re: As an investor, why is crypto so hard to value?
#122But what's easy to value is public pensions. Do the existing reserves and projected inflows match the liabilities? Of course not, they are underwater by trillions of dollars. How will fifty very different state governments and the federal government distribute these losses? Impossible to say, because different factions are already lining up different schemes with vastly different outcomes. In contrast, we already kno…
>So bitcoin competes with other currencies by being a system with transparent and predictable behavior There's no reason to believe that the crypto ecosystem is 100% secure. Any security vulnerability could destroy the value of the entire market. Not to mention that the crypto ecosystem is unable to use force.
This is a good point - that we trade political risk for technical risk, e.g. will sha256 be broken, will quantum computing break ECC, or will a well funded actor launch a 51% attack or empty block attack on the network. These are the big known-unknowns.
In these cases, ideally a hard fork would be able to maneuver the network out of the way of the technical vulnerability in time.
Less ideally, there's just the fact that crypto protocols are now so diversified in terms of hashing algos, PoW algos, and alternative consensus mechanisms (e.g PoS, zk's, etc), active chains, and governance models, that successfully knocking out the majority of them, nevermind all of them, would be almost impossible. But this is obviously less than ideal in that now you have an even more complex situation: where you are constantly hedging your savings in multiple tokens, and how do you value one versus the other? Simply in its blue-horizon cryptographic development threat model? popularity? ease of use?
>the crypto ecosystem is unable to use force.
I'd argue the crypto ecosystem has been building "soft power" with web3. To the extant one would argue "it's a scam" is directly proportional to the success of its "propaganda" agencies.
Re: As an investor, why is crypto so hard to value?
#123How do you value oil or refined fuels? Same thing, no? At least with regards to Eth and Sol, they are commodities that presently have value because in the future people will need to purchase them to conduct the work that they want to perform.
Oil has utility. I can make plastics, fuel, or lubricants, and sell the refined product at a markup. You can value oil by the value things that can be made with it against the cost to extract it. Crypto does have an "extraction" cost, so that provides a baseline, but there's no downstream product to provide that value. Crypto holders speculate that in the future they'll need crypto, but that isn't a given.
> there's no downstream product to provide that value.
Not true. Ethereum and Solana, for example, provide shared-data and shared-compute services. Eth and Sol are used to pay for these services (and are the only means to pay for these services).
You may not value these services, but there are plenty of people who do, to the tune of anywhere from $10 to even hundreds of dollars per transaction, in the case of Ethereum.
Re: As an investor, why is crypto so hard to value?
#124> The majority of crypto tokens produce zero free cash flow Then pick the ones that do have cash flow. The stablecoin MIM only uses interest bearing tokens as collateral, so thats straight up a list of tokens that fit that particular valuation criteria and risk profile. Crypto can represent any kind of asset, multiple kinds simultaneously, or none at all. That’s interesting enough for me. As a builder its extremely l…
I'm interested in this O(nlogn) argument, can you elaborate on it, or point to a source that does?
Re: As an investor, why is crypto so hard to value?
#125Earlier quoted context omitted.
Agreed. Crypto is risky and volatile, and can go to zero and that makes it difficult for the average person to treat it as a savings vehicle. The distinction in predictability between the two system is kind of subtle: In bitcoin, the internal system mechanics are highly predictable. But there's no external "Open Market Committee" (e.g FOMC) that will change the market price to hit the targets mandated by its stakehol…
But Bitcoin isn't transparent either, because none of the companies infuencing Bitcoin are.
On January 1, 2028 how much bitcoin is there? You can predict the supply to within +/- 0.00001%, regardless of the companies who influence bitcoin.
On January 1, 2028 how much M2 money supply is there? 10% more? 10% less? 100% more? 1,000% more? It completely depends on who is influencing it.
Re: As an investor, why is crypto so hard to value?
#126.
You might have been in a unique situation, not sure. But both Paysend and Wise (ex-TransferWise) payments are basically instant and 10-100 times cheaper than crypto.
I also find it a bit humorous that crypto used to boast 3 main advantages: anonymous, cheap, instant. Now KYC is very common, exchanges and transfers are incredibly expensive for PoW. It can still be fast in some cases, I give them that… if you have a quick way to convert crypto to FIAT that is (sell crypto and initiate a bank transfer that takes 5 days on Coinbase? Hmm)
Re: As an investor, why is crypto so hard to value?
#127Financially, cryptocurrency is pretty much exactly like having stock in a long bankrupt company. You can trade it with other people, you can create contracts and derivatives involving it. What you can't do is ever get anything of value from holding the stock itself. This is easy to value, but some people are uncomfortable with the answer. With so much hype and magical thinking, it feels like there most be something m…
What are your feelings on gold?
Re: As an investor, why is crypto so hard to value?
#128Financially, cryptocurrency is pretty much exactly like having stock in a long bankrupt company. You can trade it with other people, you can create contracts and derivatives involving it. What you can't do is ever get anything of value from holding the stock itself. This is easy to value, but some people are uncomfortable with the answer. With so much hype and magical thinking, it feels like there most be something m…
I think this analogy is almost correct, but it's better to think of crypto as owning a deed to land. You can in fact hold on to it and trade it, but at the end of the day all you are doing is changing the name on the deed. The land stays the land. You can put a house on it (store tokens), or you can build a factory (smart contracts), but the only reason why it has any value is because some other person may want to put a house or build a factory on it. Land has no intrinsic value because it can never truly be owned. It will outlast us all.
Re: As an investor, why is crypto so hard to value?
#129> The majority of crypto tokens produce zero free cash flow Then pick the ones that do have cash flow. The stablecoin MIM only uses interest bearing tokens as collateral, so thats straight up a list of tokens that fit that particular valuation criteria and risk profile. Crypto can represent any kind of asset, multiple kinds simultaneously, or none at all. That’s interesting enough for me. As a builder its extremely l…
I'm interested in this O(nlogn) argument, can you elaborate on it, or point to a source that does?
Between vesting grants of tokens at discounted prices, salaries in tokens, and yield farming earnings, the quantity of your tokens increase over time and the any rally in prices amplifies your earnings by orders of magnitude. Linear is O(n) so better than linear is closer to O(nlogn) and less than exponential O(n^2).
Vesting in the crypto space quite frequently is measured in months instead of years. Just industry standard because the lifecycle is so much faster, so it would be hard/impossible to attract talent with longer vesting periods. 3-6 months being common, 9-12 months being tolerable and standard, 18-36 months being the longest I've ever seen.
This is just in comparison to the crypto speculators, who have to put up capital and hope to sell at higher prices. Linear risk model for them.
Not sure what a source would look like. It would require someone doing an analysis of many projects. Just can't think of a person that would care enough to do such an analysis, yet. Maybe a recruiter? There's always the option to just lead with the assumption that this post is grounded in an existing reality, a lot of people earn in crypto and that would inherently have a different risk profile than investing their own money. Significant overlapping similarities to buying a company's shares versus earning a company's stock's.
Re: As an investor, why is crypto so hard to value?
#130Most "cryptos" are just affinity scams riding on the coattails of the true innovation of Bitcoin. They offer nothing significantly new or important over Bitcoin. Most people in the space understand this and why. Institutional investors starting to come in understand this. State governments are starting to understand this. The energy sector is starting to understand this. Yes crypto is a bubble, and it will pop. When…
Tbh Bitcoin does nothing interesting compared to say Ethereum. I think Ethereum is a far more interesting ecosystem when you consider the only cryptocurrency CoinBase runs is built on top of Ethereum. Bitcoin is the most boring coin and its only valued so much based on speculation and brand recognition.
Taproot changes this. Smart contracts are going to be a lot more feasible now.