Hacker News Reader

Comment by medo-bear | Hacker News Reader

a week ago the market was worth cca 800B. today the market is worth over 1T. for some perspective just how huge this is, ukraine's foreign debt is at 20B, or 10% of the weekly growth of the crypto market. some crash lol

View on HN

Such numbers always fascinate me, and showcase my ignorance (I freely admit it; I had a "Ask HN" recently about some "Economy 101" suggestions:) of both regular financial/economy, as well as crypto.

It's 1T worth of... what?

I can kinda sorta understand 1T of car factories and farms and food plants. I can understand the over-simplified-into-nothingness capital model of I give you $1000, you build a factory, you build cars, you create value, eventually you give me back $1100. Or something.

I can even intuitively understand (or fool myself) as to 1T of services - tourism, accounting, software, consulting. I can see its place in the world, the interconnectedness with industry and people and products and markets.

I cannot visualize/intuitively understand 1T of crypto. It feels so... insular, self-contained. 1T of... companies running datacentres running random calculations... for money, kind of? People giving each other more and more non-crypto money and making it very complex? It feels like this whirl-storm of activity, vortex that sucks stuff ("real world money") in, but I don't understand its connectivity to outside world, it's output, the balance of interfaces. My mental image is incomplete and clearly wrong.

(I suppose I should think of it more along the lines of, say, Gold market, but I don't understand that either :D )

I deposit a dollar in a bank account somewhere and mint one DollarCoin. The crypto market cap is $1.

Repeat that several times and add lending.

Interesting that you wrote that just like that.

Now apparently we have just created 1$ out of thin air.

I like that example as it already shows one of the fundamental risks of crypto.

And now you can't even just say BTC or eth or stable coin because this is true for all.

You can't just mint a new BTC on demand -- the hashing takes a fixed amount of time/energy that you have to wait for.

But that doesn't matter, you can borrow one on a defi platform and re-lend it. The exact same "money creation" process that people complain about with "banks" also works for any deposit-taking lending organisation.

But you can mint Tether or USDC on demand and use that to buy BTC.

As long as no one tries to cash it into real money the BTC price goes up and so does the market cap

the fundamental risks of crypto seems to just be a repeat of the fundamental risks of unregulated banking... first as tragedy then as farce eh?

That's an interesting point I hadn't thought about before but it should have been obvious. Crypto is inherently inflationary to the system as a whole, since you're increasing the amount of currency without increasing the number of goods.

Do you know how large the derivatives market is?

1T of 'belief that someone will pay more than the last person'. That will continue oscillating between the highs and lows until either someone finds a genuinely good use for crypto, at which point the value rockets upwards and today's coin prices look comically small, or people stop believing and the whole thing collapses.

The only mistake here is that you chose to apply a separate higher standard to crypto, as opposed to seeing how a lower standard fraught with disaster is used in traditional markets.

This is a conversation about “public float”, and so your comparison or explanation of whats hard to understand for you should be about float.

Any stocks, bond, commodity, currency, set of assets, all experience the same phenomenon: where none of the daily or weekly marketcap changes have anything to do with the equivalent amount of money changing hands.

> Any stocks, bond, commodity, currency, set of assets, all experience the same phenomenon: where none of daily or weekly the marketcap changes have anything to do with the equivalent amount of money changing hands.

Stocks have two parts to the market cap values - the value of assets and revenue, and the speculative value of future asset/revenue values. Bonds have promises of their assigned values and dividend payouts. Commodities are useful.

Currency is the closest, of course, but then it has the promises of some government - a government that can tax the income of their people, and enforce that taxation.

Only cryptocurrency, among them, only has the value of what you hope to sell it for. In the moment, it's a consensus price, but the value only goes up based on speculation that it will go up enough for your individual purposes, or somehow that particular cryptocurrency will useful enough to hold value beyond speculation.

none of the daily or weekly marketcap changes have anything to do with the equivalent amount of money changing hands

you have said nothing to the contrary

The S&P 500 performs about a half a trillion dollars a year in stock buybacks, funded by corporate profits, in addition to their roughly half a trillion dollars a year in dividends, because people are happier when numbers go up.

none of the daily or weekly marketcap changes have anything to do with the equivalent amount of money changing hands

you also have said nothing to the contrary

basically the commonality is that you two are attempting to have a conversation on differences valuation models, when this isn't a conversation on valuation models. everyone understands that this is thinly veiled copypasta for why you respect one asset class and don’t respect another asset class, some people love to read that stuff but this isn’t what this conversation is about.

its a conversation on float and what float does and does not convey. the limitations of what float can convey is the same across all asset classes which is that the last traded price of a small portion of the supply is multiplied by the total supply, and this does not factor in how much could be sold at that price and does not factor in how the buyer and seller agreed upon that price or if there was any pricing projections or valuation metrics involved at all.

Someone spending 0.5 crypto-market-caps buying stock doesn't affect stock prices and market caps?

> the limitations of what float can convey is the same across all asset classes which is that the last traded price of a small portion of the supply is multiplied by the total supply, and this does not factor in how much could be sold at that price and does not factor in how the buyer and seller agreed upon that price or if there was any pricing projections or valuation metrics involved at all.

The limitations of what float can convey may be the same across all asset classes, but other asset classes do not suffer the limitation that there is no source of value except for the float.

A corollary of this is that market caps of stocks, bonds or commodities may reflect valuation metrics other than Greater Fool Theory.

> A corollary of this is that market caps of stocks, bonds or commodities may reflect valuation metrics other than Greater Fool Theory.

That’s true for some crypto assets as well.

So in a conversation about float you should stick to float.

> That’s true for some crypto assets as well.

> So in a conversation about float you should stick to float.

It is true that in some crypto assets value can be realised as claims to the sort of value the OP said they understood, like future revenues of a business (or "DAO"), instead of solely by finding buyers for the crypto. But it is not true for the typical "insular, self-contained" cryptocurrency they sought to contrast it with, in which the market cap can be realised solely by sufficiently deep-pocketed Greater Fools purchasing the float.

In a conversation about the fundamental weirdness of assets whose value can only be realised by float, one probably should stick to assets whose value can only be realised by float.

So you acknowledge the strawman argument of valuation, used to discredit the initial point about how marketcaps change when crypto is involved, and then we both agree that the strawman argument cant even be reliably used to discredit the initial point, but then you double down on the only times it can anyway? Just for the sake of a reply?

Well good chat. I hope it is insightful to someone that passes by.

The only strawman argument of valuation was you dismissing the OP's perfectly sensible doubts about whether $1T of legal claim to business with actual physical capital and profit expectations was truly equivalent to $1T of cryptographic strings valued because number go up by pointing out technically, their market caps were both calculated in the same way, as if nobody should ever consider fundamentals or how much of the market cap of assets of the respective classes could be realised in a selloff (or indeed how much wash trading took place to completely fake market cap)

But yes, your persistence in insisting the conversation should be about what you care about, and not about the original subject matter got me to acknowledge that some cryptoassets - which are unlike the high profile, high market cap unbacked cryptoassets the OP was talking about - imitate stocks and may generate future revenue streams from selling things other than tokens. Glad you enjoyed that bit. I do hope the insight passers by come away with isn't that DAOs and stocks have equally strong legal claims and rosy expectations and float is all that matters though.

The casinos market might also be something to compare to.

In many ways a casino is like a theme park. Customer comes in, you empty their wallet, they feel happy for a while, job done move on to the next sucker. By aggregating over a large number of customers the casino takes what is gambling to the individual punter and makes it into a sure fire income stream. In a way it's honest work.

Whereas most of the "cryptocurrency" stuff is a scam, sometimes a scam onion, with layers of scams performed on other scammers. It me reminds of a juice MLM I ran into. At first I see the usual pyramid structure, there's no way you can "make money selling this" unless you're near the top of that pyramid, there are celebrity "endorsements" paid for with a nice chunk of money, and so on - but then I realise there's a whole other level. The real scammers don't waste their lives on this "fake it til you make it" crap. The MLM company has an exclusive supply deal with a single manufacturer, every bottle of crappy juice a victim pays for as "stock" for their "home business" is coming from one company owned by the scammers who dreamed all this up. They're nothing to do with any pyramid scheme, even if the Feds bust the whole thing, they're innocent, they just own a business which sells 10¢ of juice for $5 to the MLM company, just Capitalism red in tooth and claw. For every $1000 some fool spends on juice they'll never drink, $100 may end up going to some shark with great charisma and no conscience who reeled in that MLM fool, but $500+ ends up with the faceless juice makers.

how do you reason about cash reserves then?

No…You’ve nailed it. Create a hundred million “tokens.” Buy one for $10. Now you have a billion-dollar market cap.

Around here that is called a seed round.

spot on

There's multiple things to consider with the crypto space:

1) Bitcoin: It is attempting to establish hard money standard outside of state authority. It's slow going. Takes a long time to build and educate. Currently largely treated as a store of value, but there are efforts under way to make it usable as a method of payment (the Lightning network).

2) Tether and fully backed stablecoins: These provide dollar liquidity to the crypto ecosystem. More importantly, they are a very important store of wealth for the developing world, where they want dollars but laws and capital controls prevent stunt that.

3) Shitcoin casinos: The space for degenerate gamblers.

> fully backed stablecoins

Ah, but you repeat yourself.

I wish it was redundant.

> pokes Luna's corpse with a stick

To use your phrase, all cryptos are shitcoin casinos. The difference between bitcoin and all the others are just one more shitcoin. The Lightning Network is fundamentally flawed and broken anyway [1]. If it actually did work in any capacity, it would still be nothing more than a poor bandaid on top of a broken system. The bitcoin developers have the ability to fix scaling problems by taking various measures (like increasing the block size limit) but refused to do so because doing so cuts into the profits of the miners. They don't want it to be a usable payment system. The community has shown repeatedly that they'll resist all efforts to do that because it reduces the amount of money they can make. Actually the design of bitcoin means that the miners profit much more from forcing people to continuously make useless transactions, not payments.

To be honest, payment systems are well-known for being a difficult, risky and low-margin business that are the front-lines of defense against fraud and malicious bots trying to take advantage of any tiny bug they can to swipe someone's funds. It's really not surprising that the crypto promoters have washed their hands of any responsibility about this, passing it around like a big game of musical chairs to whatever project makes the most empty promises it can about being a scalable solution (but still having no answer to the problem of massive fraud and bot attacks).

As for your second item, illegally circumventing capital controls in favor of a risky, unregulated offshore bank (that repeatedly denies they are a bank in order to avoid being shut down, because they couldn't possibly comply with banking regulations) is not actually helping anyone store or accumulate wealth in a developing economy.

[1]: https://blog.dshr.org/2020/01/bitcoins-lightning-network.htm...

Your post demonstrates a clear lack of understanding about how Bitcoin works.

1) The Lightning Network is fine and stronger than ever. That >2 year old outdated post is meaningless. There are MANY more routing nodes than ever, and markets have sprung up that allow nodes to make profit around selling liquidity to other nodes. Lightning is bigger, better, easier and more private than ever, and it only continues to improve.

2) The Bitcoin developers do not control Bitcoin. The Bitcoin miners do not control Bitcoin. The nodes control Bitcoin. There are tens of thousands, at least, of full nodes. Bitcoin developers and miners have tried many times to change the consensus rules of Bitcoin, and have failed every time, because the node operators just wouldn't run the code.

That's because Bitcoin is actually decentralized. The Bitcoin community reached a social consensus that the protocol consensus rules were probably never going to change, and it was preferable that they not change. Instead, the majority of the effort for scaling Bitcoin has gone into building higher Bitcoin layers, such as the Lightning Network.

Also, if the Bitcoin developers cared about miner profits, they wouldn't have implemented something like SegWit which is a backward-compatible change which dramatically reduced transaction fees to miners.

The truth is, no amount of block size or block time changes will ever make a cryptocurrency scale enough to remain decentralized and be a network for ALL payments. Building in layers is a sound engineering decision, and it allows people to create a payment network like Lightning without making potentially deadly trade-offs in the base layer.

How do these stablecoins work if there is capital controls? Okay you have them on exchange, but how you then actually get dollars out in anywhere with capital coins? Surely some local must do trade, but surely that trade won't be 1:1?

You just trade them as dollars. In places like Lebanon, Turkey, etc many people will just use them as dollars. You can send them around in crypto wallets.

> It's 1T worth of... what?

US dollars

In general I always felt bit weirded out by whole crypto "market cap". So there is X million tokens and they are worth this number... But how much money has there actually ever been invested into it?

Not that stock market and "wealth" loss there makes much sense to me either. Or that they own what ever, power plants, ships, factories. And they sell whatever they make. Ir I get point that company makes this much money and is expected to make it going forward. Still, if the number they are traded for drops something is lost? It wasn't there in first place.

The crash happened more than a week ago.

What was the crypto market worth three months ago?

https://www.livecoinwatch.com/crypto-market-cap

it was hardly a crash. crypto market is simply huge. there is no denying this

Liquidity is what actually matters here. Your 1t figure includes all of the celciuscoins and many other coins which can't be sold in any meaningful amount.

sure much like in company valuations liquidity is an issue. however the fact that the stable coin marketcap is worth 180B gives good liquidity to the whole ecosystem

I'm not sure why you read the numbers different than I do but your provided link shows a loss of 2/3.

And is that really a lot of money in a global sense?

it depends how you read it? do you look at the global picture. the last "crash" happened after the market reached a peak of 700B value. today the market is worth more than that even after crashing. my point is that the crypto market shows crash-resilience unlike anything else that has actually crashed

For those who bought Bitcoin at around $60K - $40K it is indeed a giant crash from its previous high which it has lost 60% of its value. It is possible that if can crash another 60% to $10K, taking the whole crypto market with it. But we'll see.

> > my point is that the crypto market shows crash-resilience unlike anything else that has actually crashed

Yes. Crypto has had many 'crashes' but it seems that it isn't going to completely go away as wrongly predicted in 2011, 2013, 2015, 2017, 2018, 2019, 2021 and now 2022.

But again, as the commenters still fail to notice, the whole market (including crypto) has crashed.

if you bought into the predominant sentiment on HN (imminent crypto collapse) in 2018 and sold you would have had some serious losses. if you held your position you would have made some serious gains

> It is possible that if can crash another 60% to $10K, taking the whole crypto market with it. But we'll see.

judging by the past week, it doesnt look like it

I'll give you credit, your ability to characterize a 60% drop (so far) as "not a crash" is either pure uncut copium or the some top notch trolling.

50% or greater is not particularly unusual... even for Bitcoin. Going off some highs and immediate lows from the top Google result:

* June 2011: -99% ($32 to $0.01)

* August 2012: -56%

* April 2013: -83% ($260 to $50)

* December 2013: -50%

* December 2017-December 2018: -84% ($20,000 to $4,000)

* March 2020: -50% ($10,000 to $4,000)

* May 2021: -53% ($64,000 to $31,000)

also noteworthy is the fact that if you bought BTC in 2018 just before the crash at 20K and held you would have made some serious money even at today's "crashed" prices. however if you bought into the predominant sentiment on HN (imminent crypto collapse) and sold you would have had some serious losses

All you've proven is that Bitcoin crashes a lot.

This is not a surprise to anyone.

~$3T according to this article https://www.msn.com/en-us/money/markets/a-rally-in-bitcoin-a...

A person would think that a system whose purpose is to count would have a better understanding of $1T vs $2T vs $3T. The reason for that discrepancy is that crypto is not about the proper count of dollars.

Better yet, on 9 November 2021 (BTC's all-time high), the crypto market cap was closer to ~$2T:

https://coinmarketcap.com/historical/20211109/

Trading volume for Tether alone on that day was ~$93B, greater than the ENTIRE market's volume today ($89B).

you are surprised that people will cash out after highs?

You can't tell the difference between a slight decrease in asset prices due to taking profits, and a 60% crash?

crypto is very much alive so id say its a correction and not a crash

How much was the US real estate bubble before it popped?

people are not going into debt to buy crypto

I wouldn't say that. I know of people who took debt to get crypto because "the return will be much higher".

sure there are going to be some cases (outliers) but nothing like in the housing bubble

I have no sources and neither do you, but I am pretty sure that this statement is factually wrong.

i am pretty confident that people are not taking out mortgage-sized-loans to buy crypto. if they are banks should be taken out of business ... by crypto

[EDITED]

Mortgage is specifically for housing

HELOC says hello

are you pretty confident people are not taking home equity loans to buy crypto?

in comparison to the amount of people taking out home loans in order to get in on the housing bubble that was subsidized by the government ... yes definitely

Since you're confident, I'm sure that means it's not happening.

I know people even in the 2017 runup that got second mortgages and loans on their 401k.

a bank approved someone's second mortgage to buy cryto? that's awful! i really do hope that crypto takes traditional banks out of business :)

HELOC.

You seem to have changed your position from 'people are not doing this' to 'the banks shouldn't be letting people do this' That's a pretty big shift.

people are not doing this on the scale of real estate bubble. i am sure of that. but banks should be punished for giving out unsafe loans definitely

People have been taking out debt from crypto firms to buy crypto. That's what all the "staking" nonsense was about - and why it blew up. People are also buying on margin, which is a form of debt.

> People are also buying on margin

people have been trading foreign currency with HUGE margins long before crypto

Unfortunately, lots of people are indeed going into debt for crypto. That’s what happens when unregulated gambling becomes widely available.

“Survey: Americans Borrow Money, Default on Bills to Buy Cryptocurrency

More than 32% of cryptocurrency investors have used a payday loan in the past, and 11% have used a payday loan or title loan to invest in cryptocurrency, in spite of triple-digit interest rates…

About 21% of crypto-investors said they’ve used a loan to pay for their cryptocurrency investments. Personal loans were most popular, but payday loans, title loans, mortgage refinances, home equity loans and leftover student loan funds also have been utilized…

Investors are going into debt: Almost 19% of respondents said they’ve struggled to pay at least one bill due to the amount of money they’ve invested in cryptocurrency, and about 15% said they’ve worried about eviction, foreclosure or car repossession due to their investing…

More than 35% have used a credit card to purchase cryptocurrency, with about 20% of those paying it off when the bill came due, and another 14% are paying it off incrementally with either an 0% APR introductory offer or at the full interest rate, while 1% maxed out their card altogether…”

https://debthammer.org/cryptocurrency-survey/

(shout-out to Molly White @molly0xFFF for continuing to meticulously document this disaster at https://web3isgoinggreat.com)

my point is that the ammount of borrowing people are doing to get into crypto is nothing in comparison to the amount of borrowing that drove the real estate bubble

Every dollar they put into crypto, borrowed or not, could have gone into something with an actual use case. A house has a use. A tulip bulb has a use.

> A house has a use

yet the housing market crashed and will probably crash again

You can grow a pretty flower from a tulip bulb.

Indeed. And with enough sun, rain, soil, and chill hours[1], that bulb can become two in a few years, doubling your investment…

[1] which can and should be faked by putting the bulb in the fridge for 12-14 weeks before planting, if you live in a warm winter climate like the Bay Area

1.3 T according to: https://www.ecb.europa.eu/press/key/date/2022/html/ecb.sp220...

Reply on news.ycombinator.com