But at the end of the day, how is it different from the current equities market? (aside from immature tools and imperfect infrastructure that is just shaping up). Stock market can tank 50% like it did in 2009 (together with the real estate market) and your average investor will be screwed just the same. Even tech and fundamental analysis gurus cannot explain the endless bull market we're on, how is getting lured into stock market with positive press today is any different than BTC? Currently both are different forms of gambling imho.
When I make an investment in a company I'm providing capital that that company can use in various ways.
In return I become an (very small) owner of the company. I get a say in how it's run (voting rights), and I get a share of the profit (in dividends).
If you hold on to a stock like coca cola for 30 years, never looking at the stock price, and never sell, you'll actually make money.
Yes there's risk, coca cola could go out of business. But that's pretty unlikely, and if you're not willing to take that risk, consider using a diversification strategy. Buy some passively managed ETFs.
Even with the crisis, in the long run, you would've made money. Investing is not gambling, it's not a zero sum game and the fundamentals of it have some basis in reality.
Whatever is happening with Bitcoin right now makes no sense. Eventually things like this have to realign with reality.
Not to challenge your argument itself, and I know you’re not the author who commented above, but I really dislike this kind of “argument-swapping.” I see it a lot, for a lot of issues, but especially for issues that are complex and not deeply understood by most people, like Bitcoin, corporate finance, etc.
It starts with an easily-digestible and shareable argument, like “Bitcoin prices and market cap are a lie.” Then someone points out that, yes, perhaps many people misunderstand basic concepts in finance like spread and market cap, but that applies to any asset or currency or security.
Then someone else joins in with a completely unrelated argument, like “yeah, but Bitcoins don’t actually do or represent anything, whereas stocks do.” Even assuming this is a valid argument, it doesn’t change the invalidity of the first argument. But I fear that all too often people see the entire exchange as if it’s a sequence of related claims, and thus feel inclined to believe and share the initial talking point as if it was somehow corroborated by the later unrelated argument.
1. the stock market, other than the IPO is a secondary market. You are not providing capital to the company but just paying another trader for his shares.
2. The majority of stocks do not provide (and will never) dividends and the majority of buyers have no voting rights.
but you are right. For practical purposes, the stock market is not pure gambling. There are institutions that make it legitimate. Such as the SEC, pensions, 401ks and brokerage firms. And the fact the government cares so much about it going up (because it funds so many pensions and social security might go away)
But lets not fool ourselves in thinking the stock market is a virtuous piece of infrastructure. The vast majority of stock holders dont know anything about the conpanies they invest nor how stocks even work. They invest blindly in it through mutual funds or 401ks.
This isn't entirely true. If secondary market trades increase the value of the stock then the company can sell some of their stock to get more funding, or can borrow at better terms.
Similarly, buying and holding Bitcoin has a range of effects that help the network and generate real wealth. Bitcoin is a services company, a payment network, a bank, and investment vehicle, a reflection of wealth in that economy, a notary, a liberated, sound money and a protest - all disguised as a get rich quick scheme.
Almost no companies today are selling stock to grow the company. Tesla is a big exception. Somehow we have gotten to a place where there is lots of capital wanting to invest in something that will make returns, but few people/companies wanting to work with large sums of capital to try new business ideas.
> Almost no companies today are selling stock to grow the company
Public market performance influences IPO performance. IPO performance directly knocks on future managements’ decisions around going public or raising a private round. The performance of those moves influences early-stage capital availability through multiple channels. Equity markets, broadly, are complicated, but they are an essential component to fuelling firm creation and growth.
Even then, if Coca-Cola goes out of business, and the stock is delisted (so the price is effectively zero or close to it), you still own 1 millionth or whatever of the company, and the company has actual tangible and intangible assets (including its name, which in Coca-Cola’s case would be one of its most valuable) that can be liquidated to recoup value to the owners. If Bitcoin goes to zero, there’s no backing store of value to sell — you own a number whose entire value in other monetary units is based on people wanting to buy it, not on any asset or guarantee backing it.
As companies become more highly leveraged, this becomes less and less true. For really highly leveraged companies, you're basically just speculating on their future growth because there will be nothing left to sell after the creditors and bondholders get in line ahead of you.
But the stock market - in general - has ridiculously profitable and powerful entities behind it. No matter what happens to investor confidence, ownership of Apple is going to be very valuable because they generate a ridiculous amount of profit.
Cryptos, on the other hand, are entirely based on investor confidence.
It's not a given that Apple will continue to generate insane profit. Apple will remain very valuable because it has tangible assets that can be sold (book value). So with a total lack of investor confidence, the price floor of Apple shares should be book value - debts.
Cryptocurrencies aren't backed by tangible assets, so the price floor is 0.
I'm not sure a neat definition of a price floor always holds in practice. Wasn't Yahoo at some point valued less than their tangible assets/stake in Alibaba?
The major difference from the current equities market, as described in the fine article (the latter half of it), is that in the Bitcoin market you see common manipulative practices that are illegal and also mostly eliminated from the current equities market.
Because of inter-exchange protocols (FIX / FAST) to share the order book, that isn't happening with bitcoin, hence the spreads (between exchanges) and associated arbitrage opportunity.
I have been invested in Bitcoin since the very early days. This bull run can be explained, in fact it was predicted by many. I'd be happy to address any questions.
