How is this different than securities sold on public stock markets? If you hold a large position in a nasdaq 100 stock and drop a large sell order on the ECN's, you are surely going to see a similar (albeit not as dramatic) phenomenon. Does that mean the market cap of stocks shouldn't be used to assess value?
ThePhysicist|8 years ago
Also, NASDAQ stocks represent the underlying value (as well as future revenue expectations) of a real-world company, hence short-selling your stock to manipulate the price (usually) doesn't make much sense if the fundamentals of the underlying company are good, as investors that are optimistic about the future of the company will happily buy the stock that you sell. Of course there are situations where large funds speculate against companies or even governments, but this is (usually) only possible if there is a fundamental issue in the underlying asset such as a nation in a deep recession or debt crisis.
For ETH there is currently no underlying asset that would have a value in the real world and which could serve as an "anchor of trust" for an investor. It should therefore be much easier to manipulate and speculate against ETH as there is little external information beyond the exchange rate that other investors have as a basis for their valuation. Also, as of now there is no large economic process that depends on the existence and functioning of ETH, hence there would be very little external pressure to keep the currency alive if people started speculating against it.
For most cryptocurrencies, the initial developers / creators are similar to the founders of a publicly traded company in the sense that they possess a large fraction of the shares of the company / number of coins. What's different is that there is little for the "crypto-shareholders" to hold on to their coins in case of a sharp price drop, as there is no underlying asset that their coins represent. Economically, they are highly incentivized to "cash out" as soon as they think that the price has reached its maximum value (and this is what I expect will happen with many crypto-currencies as soon as the market cools down). With shares this is different as ownership of the share allows you to continuously extract value from the underlying company in the form of dividends, hence the incentive for selling your shares is much smaller even if you think that the share price has reached its maximum.
I would therefore be very cautious about long-term investments in ETH, as there is no safety net and no guarantor behind the value. And while this is great for gambling, it does not provide a viable platform to build real world applications on top of (in my opinion).