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As an investor, why is crypto so hard to value?

fundamentalinvestor.substack.com

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Re: As an investor, why is crypto so hard to value?

#141

Post by BongoMcCat »

evandwight wrote: post #127
tveita wrote: post #96

Financially, 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?

not op, but if bitcoin existed 1000 years ago, it would probably have replaced gold as a generic currency.

And while one might argue that the reason that gold is valued today is because of historic reasons, that it has been accepted as something of value almost everywhere for a very long time..

Now, if this wasn't the case, and someone would have proposed today that we should make this metal a currency just because it is limited in supply and very easy to recognize, I would probably feel the same way about gold as I do about bitcoin.

Re: As an investor, why is crypto so hard to value?

#143

Post by SQueeeeeL »

robcohen wrote: post #128
tveita wrote: post #96

Financially, 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 pu…

I feel like this time of analogy is the exact type of magical thinking the parent post identified.

Re: As an investor, why is crypto so hard to value?

#144

Post by walkhour »

tveita wrote: post #96

Financially, 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…

The fundamental problem of any such criticism of crypto is explaining then how crypto is different from gold besides "some people value gold also because of intrinsic value". Why is gold not exactly like having stock in a long bankrupt company?

If gold is indeed like crypto, then when is this gradually built dogma finally going to be exposed? Holding gold would've been good investment advice almost in any civilization.

Re: As an investor, why is crypto so hard to value?

#145

Post by walkhour »

jacknews wrote: post #10

With the methods the author is using, I think they would also be unable to value gold and other non-producing assets. Crypto (despite claims that it's a currency) is a digital "asset". Like gold, but without any real-world use like jewellery, coatings, etc, and with a far shorter history of being a store of value. The problem with valuing it then is due to assessing risk. It could be trading at zero tomorrow, and the…

Crypto could crash tomorrow but the value won't be zero, similar to gold it has intrinsic value. Some people value it because they think it's cool, because they think they're fighting the government, because it would've been historically important, ...

Re: As an investor, why is crypto so hard to value?

#146

Post by convolutionart »

hotpotamus wrote: post #131
hnarn wrote: post #115

Earlier quoted context omitted.

I don't know what you're implying. Why do you think shares exist?

I believe shares exist to raise capital to exploit a natural resource in this case. But if I already have a profitable mine, I doubt I'd have much incentive to invite others to share ownership of that mine. However, if I have a hole in the ground that doesn't produce anything of value, then it's in my interest to sell shares of it since that might be my only income. Just a thought really - in spite of hearing many go…

Selling shares hedges your risk. Investors are also trying to hedge theirs. That's all it is, a tool to hedge risks. When it's not based in reality it's speculation a.k.a. gambling.

Re: As an investor, why is crypto so hard to value?

#147

Post by hnarn »

hotpotamus wrote: post #131
hnarn wrote: post #115

Earlier quoted context omitted.

I don't know what you're implying. Why do you think shares exist?

I believe shares exist to raise capital to exploit a natural resource in this case. But if I already have a profitable mine, I doubt I'd have much incentive to invite others to share ownership of that mine. However, if I have a hole in the ground that doesn't produce anything of value, then it's in my interest to sell shares of it since that might be my only income. Just a thought really - in spite of hearing many go…

> if I already have a profitable mine, I doubt I'd have much incentive to invite others to share ownership of that mine

"Profit" isn't binary, it's an amount of capital that may or may not be enough to invest in things that are likely to increase your profits even more. If you need extra capital to increase your profits, would you as the owner rather wait 20 years and pay for the investments yourself, or share the profits right now and take less risk?

Shares aren't a scam, it's just a pitch for investing. It's a risk/reward presentation that investors can choose to buy if they want. When companies issue shares they're saying "we could use some more money, have a look at our business and if it makes sense, buy some". There's nothing remotely dubious about it, and there are many legitimate situations where a company requires more capital despite being profitable.

Re: As an investor, why is crypto so hard to value?

#148

Post by authed »

tveita wrote: post #96

Financially, 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…

> Repeat it enough and the dogma gradually becomes a truth you can build anything on top of.

That's what people that don't understand it hope.

Re: As an investor, why is crypto so hard to value?

#149

Post by pureliquidhw »

legutierr wrote: post #123
pureliquidhw wrote: post #106

Earlier quoted context omitted.

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 Ethereu…

That's basically replacing regular currency buying a service. The earlier comparison was to commodities and crypto's difficult to value nature.

I won't argue you can't buy goods and services with crypto. You certainly can't produce plastic without oil, but there's nothing that can be made with crypto. It's not a commodity. That's why it's a speculative asset that's hard to value. Sentiment means more to crypto values than downstream values.

In this particular example, if a competitor offered data sharing and shared compute services 100x cheaper than the eth network, I don't think eth value would go down anything close to 100x. If I found a way to turn air into plastic and gas, you can bet oil prices would plunge. If Musk said crypto is dead, prices would plummet.

Re: As an investor, why is crypto so hard to value?

#150

Post by aurizon »

hnarn wrote: post #87
aurizon wrote: post #14

There is a quote, attributed to Mark Twain and others, which can be adapted to Crypto Currency. A mine is a hole in the ground. The discoverer of it is a natural liar. The hole in the ground and the liar combine and issue shares and trap fools.—Detroit Free Press. https://quoteinvestigator.com/2015/07/19/gold-mine/ And as applied to Crypto Currency:- A crypto currency is a hole in the air. The discoverer of it is a n…

Are you saying that there are no profitable mines in the world?

Mining is an area with a very high riskware ratio. 100 years ago, mines were found by surface prospecting. You mind some ore, be it gold, silver, copper, zinc. and you dig a hole and manually remove the ore. You have seen the old movies with the quintessential bearded prospector. Back in those days a lot of land was state/federal/crown land. You could get a prospectors licence and stake land. This consists of placing a number of wooden stakes in a more or less North-South grid, with you name date and licence number - which was then filed with the relevant government. That gave you the right to exclude others and explore the claims for minerals for 2 years, after which it could be renewed for an additional fee and you also had to file a geologists report on the work you did of a certain minimum value. You could keep doing this and if you had a potential mine, you could ask for a mining lease, and if granted take bulk samples or did a mine - usually by rock blasting in hard rock, but could also be with a grader if you mined aluminum bauxite. about 1 in a 100 surface prospects end up in a mine. Mines can be immensely profitable. A case in point. Foran Mining was 12 cents 2 years ago. (https://foranmining.com/)Since then their copper/zinc/gold mine has drilled and proven 40 million tonnes of ore, and it looks as if it will end up between 60 and 80 million tons. This mine will last for 50-60 years and then it will be a worthless hole in the ground. Once in production in 3 years it will head for $40-50 per share from the current $2.50 So 100 holes = 1 mine. That can be 99 crooks and one good prospector, or even 100 good honest prospectors, of which one was lucky and 99 not so much.

The truth is mines are very profitable, and the trick is to find one. Modern mine discovery is driven by geophysics, since most of the rich surface showings have been found in hard rock areas. Over the next 2-3 years Foran will start producing Copper, Zinc and gold for the next ~~ 60 years and will reward investors well and will pay a cash dividend for ~~60 years...

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