Global cryptocurrency “market cap” exceeds “US” currency in circulation • Hacker News Board

Re: Global cryptocurrency “market cap” exceeds “US” currency in circulation

#21

Post by 60secz » Mon, May 03, 2021, 7:40 PM UTC

eloff wrote: post #12

mikeyouse wrote: post #9

"Market cap" is a completely meaningless phrase in the crypto space. One of my least favorite things about crpyto in general is their frequent adoption of words and phrases that have actual meaning in traditional finance and then repurposing them for vaguely similar purposes to imply parity.

Why is it meaningless?

Because the value of cryptocurrency is strongly effected by the volume of buy and sell pressure. Market cap implies that a level of liquidity which is likely not present -- it can very difficult to sell large amounts of most crypto without at least temporarily tanking the value.

Re: Global cryptocurrency “market cap” exceeds “US” currency in circulation

#22

Post by jollybean » Mon, May 03, 2021, 7:40 PM UTC

bawolff wrote: post #11

aritmo wrote: post #3

"market cap" assumes infinite demand for your currency, and that all your currency will sold at the current value. Kinda not happening.

Models being imperfect, don't make them useless, especially when you're modelling both phenomenom the same way.

Comparing money in circulation, to the value of arbitrary tokens, most of which are held by a few small players, isn't 'comparing a phenom on the same basis'.

Since cryptos are not a currency, and have no backing either in the form of some other financial instrument (i.e. Government Bonds) or Real Estate, it's hard to compare to other things.

Re: Global cryptocurrency “market cap” exceeds “US” currency in circulation

#23

Post by vmception » Mon, May 03, 2021, 7:41 PM UTC

aritmo wrote: post #3

"market cap" assumes infinite demand for your currency, and that all your currency will sold at the current value. Kinda not happening.

The same standard is used for fiat currencies, which is why they have fluctuating values against other currencies. It is just a premined asset with infinite emissions with some recurring demand drivers, it doesnt exist in a different reality than other assets such as crypto. The market tolerates it and thats that.

The entire FX market is that reality.

The reporting and liquidity of crypto assets has become impressive and will continue to improve. I think the most useful thing would be for you to make a note of what standard or threshold you would use to find crypto growth to be impressive, make sure that standard is a standard that matches other asset classes you respect instead of a fictional higher standard exclusively for crypto, and then watch for crypto to meet those standards as it matures. You can even help improve it.

Re: Global cryptocurrency “market cap” exceeds “US” currency in circulation

#24

Post by skystarman » Mon, May 03, 2021, 7:41 PM UTC

swader999 wrote: post #8

Market cap is a strange way to frame crypto. Would you ever talk about market cap of USD or the pound? Transaction volume, unique addresses, stock to flow are more useful.

The vast majority of people who buy bitcoin are using it as an "investment" so market cap makes sense here.

Re: Global cryptocurrency “market cap” exceeds “US” currency in circulation

#25

Post by AnthonyMouse » Mon, May 03, 2021, 7:43 PM UTC

ISL wrote: post #10

wutXthree wrote: post #4

Earlier quoted context omitted.

same for the "US" dollar?

Nope -- if we're comparing market-caps as priced in dollars, the USD market-cap will always be the number of dollars in circulation. If we're comparing market-caps in gold bars or cheeseburgers, it is a different story.

But the current market cap of cryptocurrency in gold bars or cheeseburgers is higher than the current market cap of US dollars in gold bars or cheeseburgers, right?

Re: Global cryptocurrency “market cap” exceeds “US” currency in circulation

#26

Post by drdeca » Mon, May 03, 2021, 7:46 PM UTC

Black101 wrote: post #7

aritmo wrote: post #3

"market cap" assumes infinite demand for your currency, and that all your currency will sold at the current value. Kinda not happening.

> "market cap" assumes infinite demand for your currency no... infinite demand would make market cap infinite also...

The phrasing probably wasn't ideal. I think they meant something different when they said "infinite demand" than what you mean.

I think what they mean is that it assumes that the demand curve, uh, I guess goes off to infinity (or just, some extremely large number which can be practically modeled as "infinity") near the current price,

meaning, that you could sell arbitrarily large amounts of it without substantially decreasing the price that people are willing to pay for it.

Which, yeah, that assumption seems false in practically relevant ways. If you sell a whole lot of [cryptotoken X], the price is likely to go down?

Re: Global cryptocurrency “market cap” exceeds “US” currency in circulation

#27

Post by NovemberWhiskey » Mon, May 03, 2021, 7:47 PM UTC

sb057 wrote: post #19

In this context, "currency in circulation" refers specifically to coins and paper notes, not electronic or accounting forms of dollars.

Right. On the one hand, we're comparing the U.S. dollar value of all crypto-assets, and on the other hand we're counting the amount of paper currency and coinage.

Given that crypto-assets do not have a physical form, why compare on this basis?

Well, that's obvious. If you look at a more-comparable monetary stock measures (say, M2, which includes dollars in checking, savings, small time-deposits and liquid money market funds) you find that the U.S. dollar number is more like $20tn and it looks a lot less exciting.

Let's also ignore the fact that the "market cap" of a crypto-asset in U.S. dollar terms is not a cash equivalent because, and let me go out on a limb here, if you tried to find a buyer for every bitcoin in circulation your VWAP would not be the current spot price.

Re: Global cryptocurrency “market cap” exceeds “US” currency in circulation

#28

Post by mikeyouse » Mon, May 03, 2021, 7:48 PM UTC

eloff wrote: post #12

mikeyouse wrote: post #9

"Market cap" is a completely meaningless phrase in the crypto space. One of my least favorite things about crpyto in general is their frequent adoption of words and phrases that have actual meaning in traditional finance and then repurposing them for vaguely similar purposes to imply parity.

Why is it meaningless?

"Market cap" is borrowed from equity - the market cap of Apple for instance is determined by the number of shares of Apple outstanding x their price. But those shares have intrinsic value in that they grant you rights to a proportional amount of Apple's cash flow. If you were to destroy 50% of Apple's shares, the remaining half would be worth twice as much since the present value of Apple's cash flows hasn't changed.

Assets and currencies don't have market caps in any sense. Take a look back pre-Bitcoin and there are basically no references to the "market cap of Gold" or any such thing, they've all arisen due to the comparisons to Bitcoin. There's no intrinsic or underlying value, prices are purely trade driven. This doesn't make them "bad" per se, just completely different than something like Market Cap can capture.

As one other point for Bitcoin specifically, basically nobody knows how many Bitcoin are actually in circulation. There are a million+ lost / inactive. If someone moved a single BTC out of Satoshi's wallet, the price would very likely collapse nearly instantaneously. So how can a "market cap" be treated seriously if a single "share" trading hands at current market prices would collapse it. Bezos sells over $1 Billion of Amazon stock per year to no impact on AMZN.

Re: Global cryptocurrency “market cap” exceeds “US” currency in circulation

#29

Post by belltaco » Mon, May 03, 2021, 8:06 PM UTC

AnthonyMouse wrote: post #25

ISL wrote: post #10

Earlier quoted context omitted.

Nope -- if we're comparing market-caps as priced in dollars, the USD market-cap will always be the number of dollars in circulation. If we're comparing market-caps in gold bars or cheeseburgers, it is a different story.

But the current market cap of cryptocurrency in gold bars or cheeseburgers is higher than the current market cap of US dollars in gold bars or cheeseburgers, right?

No, because the post only counts cash in circulation, and not USD in bank accounts.

Re: Global cryptocurrency “market cap” exceeds “US” currency in circulation

#30

Post by eloff » Mon, May 03, 2021, 8:44 PM UTC

orbifold wrote: post #17

eloff wrote: post #12

Earlier quoted context omitted.

Why is it meaningless?

There are 4.6 bitcoin transactions per second, how many dollar transaction do you think there are per second and what kind of volume of dollars are traded. Also there are different kinds of dollar in circulation, for example M2 is much higher (by a factor of 10) https://fred.stlouisfed.org/series/M2SL .

"Market cap" is never a measure of transaction volume.