You realize that this is how valuations for publicly-traded companies are calculated, right? Also the networths of people whose vast majority of wealth is tied to publicly-traded shares.
Putting on a white coat doesn't make you a doctor, the years you spend studying and practicing does.
Similarly, printing a billion tokens and trading one for a dollar doesn't give you a billion dollar market cap, even though "all the stocks do it!" Those stocks also back productive systems, have financial statements, forecasts, and a million other things that make them a billion dollar (or larger) market capped company.
Hey, it's fine, we'll just make another cryptocurrency that serves to back it, and control the price of that to keep the value stable. What could go wrong?!
So, it's a bit different. In the simplest case, a company pays 1bn dividends every year, so if 5% is considered a good rate of return currently, and there's no reason to expect the company's profitability changes much, then the value of that company is $20bn. Now, obviously, there's a lot of complexity layered on top of this. Many companies don't do dividends, preferring stock buybacks, for various reasons. Some companies are valued on _assumed future profits_, not current (ie valued on potential). And then there's speculation. But ultimately, if half of the $20bn company is suddenly sold, well, the price, in a rational market, shouldn't actually move much, unless the future value of money has also shifted. The company could be taken private by someone who had $20bn and thought $1bn/year was a good return.
Bitcoin's really pretty different; the value is ~entirely speculation driven. It does not, and cannot, pay dividends, or buy back its own 'shares', or anything like that. No-one would ever consider buying all the bitcoins (in the same way they might take the $20bn company private); the sole value of bitcoin is in other people wanting to buy bitcoin.
Shares give you rights and have a fundamental value. If the market undervalues them, you can buy the company and make lots of money when proven right (by virtue of the cash the real business makes and pays out in dividends).
That’s fundamentally different from crypto which has no fundamental value, but only sentiment behind it. When the sentiment is gone, the value is gone. Unlike, again, shares.
Those buildings and equipment and patents may have value, but less than the bonds, loans, and other liabilities IBM also has. Not only could IBM be worth $0, it could be worth less than that.
Things are worth whatever people are willing to pay. Bitcoin may be the original sin of crypto bros, but it still appears to be worth money, because it's impossible to make one for free, or obtain one for free. And it has utility. You can buy drugs or avoid the banking system using it.
Silicon Valley Bank had buildings. It was literally worthless at the end. A company is just as fictitious as a bitcoin, only existing because people all agree that "company" is a thing.
polygamous_bat|2 years ago
Similarly, printing a billion tokens and trading one for a dollar doesn't give you a billion dollar market cap, even though "all the stocks do it!" Those stocks also back productive systems, have financial statements, forecasts, and a million other things that make them a billion dollar (or larger) market capped company.
Tao3300|2 years ago
rsynnott|2 years ago
Bitcoin's really pretty different; the value is ~entirely speculation driven. It does not, and cannot, pay dividends, or buy back its own 'shares', or anything like that. No-one would ever consider buying all the bitcoins (in the same way they might take the $20bn company private); the sole value of bitcoin is in other people wanting to buy bitcoin.
FabHK|2 years ago
hinkley|2 years ago
function_seven|2 years ago
Things are worth whatever people are willing to pay. Bitcoin may be the original sin of crypto bros, but it still appears to be worth money, because it's impossible to make one for free, or obtain one for free. And it has utility. You can buy drugs or avoid the banking system using it.
Silicon Valley Bank had buildings. It was literally worthless at the end. A company is just as fictitious as a bitcoin, only existing because people all agree that "company" is a thing.
(EDIT: I changed my example to SVB from Enron)